<PAGE>   1
 
                                  SCHEDULE 14A
                                 (RULE 14A-101)
                    INFORMATION REQUIRED IN PROXY STATEMENT
                            SCHEDULE 14A INFORMATION
          PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
                    EXCHANGE ACT OF 1934 (Amendment No.   )
 
Filed by the registrant  /X/
 
Filed by a party other than the registrant  / /
 
Check the appropriate box:
 
/ /  Preliminary proxy statement
 
/X/  Definitive proxy statement
 
/ /  Definitive additional materials
 
/ /  Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
 
                          THE PROGRESSIVE CORPORATION          
                (NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
       DAVID M. SCHNEIDER, GENERAL COUNSEL AND SECRETARY
                   (NAME OF PERSON(S) FILING PROXY STATEMENT)
 
Payment of filing fee (Check the appropriate box):
 
/X/  $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
 
/ /  $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
 
/ /  Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
 
(1) Title of each class of securities to which transaction applies:
       Not Applicable
 
(2) Aggregate number of securities to which transaction applies:
       Not Applicable
 
(3) Per unit price or other underlying value of transaction computed pursuant to
    Exchange Act Rule 0-11:(1)
       Not Applicable
 
(4) Proposed maximum aggregate value of transaction:
       Not Applicable
(1) Set forth the amount on which the filing fee is calculated and state how it
    was determined. 
/ /  Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
 
(1) Amount previously paid:
       Not Applicable
 
(2) Form, schedule or registration statement no.:
       Not Applicable
 
(3) Filing party:
       Not Applicable
 
(4) Date filed:
       Not Applicable

<PAGE>   2
 
                           [INSERT PROGRESSIVE LOGO]
 

                    NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
 
                           TO BE HELD APRIL 22, 1994
 
     Notice is hereby given that the Annual Meeting of Shareholders of The
Progressive Corporation will be held at 6671 Beta Drive, Mayfield Village, Ohio,
on Friday, April 22, 1994, at 10:00 a.m., Cleveland time, for the following
purposes:
 
          1. To elect seven directors, each to serve for a term of one year;
 
          2. To approve the Company's 1994 Executive Bonus Plan as it applies to
     certain executive officers; and
 
          3. To transact such other business as may properly come before the
     meeting.
 
     Only shareholders of record at the close of business on February 24, 1994,
will be entitled to notice of and to vote at said meeting or any adjournment
thereof.
 
     By Order of the Board of Directors.
 
                                            DAVID M. SCHNEIDER, Secretary
 
M
arch 18, 1994
 
     SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED TO
DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.

<PAGE>   3
 
                          THE PROGRESSIVE CORPORATION
 
                                PROXY STATEMENT
 
     This statement is furnished in connection with the solicitation of proxies
for use at the Annual Meeting of Shareholders of The Progressive Corporation, an
Ohio corporation (the "Company"), to be held at 10:00 a.m., Cleveland time, on
Friday, April 22, 1994, at 6671 Beta Drive, Mayfield Village, Ohio 44143, and at
any adjournment thereof. This statement and the accompanying proxy, together
with the Company's Annual Report to Shareholders for the fiscal year ended
December 31, 1993, will first be sent to shareholders on or about March 21,
1994.
 
     The close of business on February 24, 1994, has been fixed as the record
date for the determination of shareholders entitled to notice of and to vote at
the meeting. At that date, the Company had outstanding 72,160,372 Common Shares,
each of which will be entitled to one vote.
 

                         ITEM 1:  ELECTION OF DIRECTORS
 
     The Company's Code of Regulations provides that in no case shall the number
of directors be less than five or more than twelve. The number of directors has
been fixed at eight. At the meeting, the shares represented by proxies, unless
otherwise specified, will be voted for the election as directors of the seven
nominees hereinafter named, to serve until the next Annual Meeting of
Shareholders and until their respective successors are duly elected and
qualified. One vacancy will remain on the Board. If, by reason of death or other
unexpected occurrence, any one or more of the nominees hereinafter named should
not be available for election, the proxies will be voted for such substitute
nominee(s), if any, as the Board of Directors may propose.
 
     No decision has been made to fill the vacancy on the Board, nor have any
candidates been considered and approved by the Board. However, the Board
believes that it is desirable to have this vacancy available, so that it could
be filled by action of the Board should a person who could make a valuable
contribution as a director of the Company be identified during the year. Proxies
cannot be voted at the Annual Meeting for a greater number of persons than the
seven nominees named in this proxy statement, although persons in addition to
those nominees may be nominated by the shareholders at the meeting.
 
     If notice in writing is given by any shareholder to the President or
Secretary not less than 48 hours before the time fixed for holding the meeting
that such shareholder desires that the voting for election of directors shall be
cumulative, and if an announcement of the giving of such notice is made upon the
convening of such meeting by the Chairman or Secretary or by or on behalf of the
shareholder giving such notice, each shareholder shall have the right to
cumulate his or her voting power at such election and to give one nominee a
number of votes equal to the number of directors to be elected multiplied by the
number of shares he or she holds, or to distribute such votes on the same basis
among two or more nominees, as such shareholder sees fit. If voting for the
election of directors is cumulative, the persons named in the enclosed proxy
will vote the
 
                                        1

<PAGE>   4
 
shares represented thereby and by other proxies held by them so as to elect as
many of the seven nominees named below as possible.
 
     The following information is set forth with respect to each person
nominated for election as a director, each of whom is currently a director of
the Company:
 
                  NOMINEES FOR ELECTION AT THE ANNUAL MEETING
 

<TABLE>
<CAPTION>
                                                 PRINCIPAL OCCUPATION AND              DIRECTOR
            NAME               AGE         LAST FIVE YEARS' BUSINESS EXPERIENCE         SINCE
- - - ----------------------------   ---    ----------------------------------------------   --------
<S>                            <C>    <C>                                              <C>
Milton N. Allen (1)            66     Director of various companies; Chairman of the     1978
                                      Board, MDSS, Inc., Cleveland, Ohio (computer
                                      software company) until July 1990
B. Charles Ames (2)            68     Principal, Clayton, Dubilier & Rice, Inc., New     1983
                                      York, New York (investment banking) since May
                                      1990; Chairman and Chief Executive Officer,
                                      Uniroyal Goodrich Tire Company, Akron, Ohio
                                      (manufacturing) from January 1988 to May 1990
Stephen R. Hardis (3)          58     Chief Financial and Administrative Officer,        1988
                                      Vice Chairman and a director of Eaton
                                      Corporation, Cleveland, Ohio (manufacturing)
Peter B. Lewis (4)             60     President and Chief Executive Officer of the       1965
                                      Company; Chairman of the Board of the Company
                                      since April 1993; Chairman of the Board,
                                      President and Chief Executive Officer of Pro-
                                      gressive Casualty Insurance Company
Norman S. Matthews (5)         61     Consultant, New York, New York                     1981
Donald B. Shackelford (6)      61     Chairman of the Board, State Savings Bank,         1976
                                      Columbus, Ohio (savings and loan)
Paul B. Sigler                 60     Professor, Yale University and Investigator in     1981
                                      the Howard Hughes Medical Institute
</TABLE>

 
- - - ---------------
 
(1) Mr. Allen is also a director of AGA Gas, Inc., which is publicly held, and
    Actron Manufacturing Company and The Bradford Group, Inc., which are
    privately held.
 
(2) Mr. Ames is also a director of Diamond Shamrock R & M, Inc., M.A. Hanna
    Company and Warner-Lambert Company, which are publicly held, and Homeland
    Holding, Inc. and Lexmark Holding, Inc., which are privately held.
 
(3) Mr. Hardis is also a director of Nordson Corporation and Society Corporation
    and a trustee of First Union Realty Investment Trust, all of which, as well
    as Eaton Corporation, are publicly held.
 
                                        2

<PAGE>   5
 
(4) Mr. Peter B. Lewis is also an officer and director of other subsidiaries of
    the Company. Mr. Daniel R. Lewis, an executive officer of the Company, is
    the brother of Mr. Peter B. Lewis.
 
(5) Mr. Matthews is also a director of Lechters, Inc., Hills Stores Company and
    Lamont's Apparel, Inc., which are publicly held, and Loehmann's, Inc., Eye
    Care Centers of America and Finlay Fine Jewelry, Inc., which are privately
    held.
 
(6) Mr. Shackelford is also a director of The Limited, Inc. and Worthington
    Foods, Inc., which are publicly held.
 
     Six meetings of the Board of Directors were held during 1993.
 
     The Board has named an Executive Committee, an Audit Committee and an
Executive Compensation Committee, as described below. The Board has not
designated a nominating committee.
 
     Messrs. Allen, Hardis and Lewis are the current members of the Board's
Executive Committee, which exercises all powers of the Board between Board
meetings, except the power to fill vacancies on the Board or its committees.
During 1993, the Executive Committee adopted resolutions by written action
pursuant to Ohio corporation law on four occasions.
 
     Messrs. Allen, Hardis, Shackelford and Sigler are the current members of
the Board's Audit Committee, which ensures that organization, policies, controls
and systems are in place to monitor performance; provides an independent channel
to receive appropriate communications from employees, auditors, counsel, bankers
and consultants; and monitors the public release of financial information. The
Audit Committee met three times during 1993.
 
     Messrs. Allen, Matthews and Shackelford are the current members of the
Board's Executive Compensation Committee, which monitors and directs the
administration of the Company's executive compensation program, including the
various cash and stock incentive programs in which officers and employees of the
Company participate. During 1993, the Executive Compensation Committee met three
times and adopted resolutions by written action pursuant to Ohio corporation law
on one occasion.
 
CERTAIN RELATED TRANSACTIONS
 
     In January 1991, the Company purchased 4,851,000 shares (adjusted for the
2-for-1 stock split paid February 12, 1993), or 4.9%, of the common stock of
MBNA Corporation in connection with MBNA Corporation's initial public offering
at a per share price of $10.615 (split-adjusted), for an aggregate purchase
price of $51,493,365. At the time of the transaction, Mr. Alfred Lerner was the
Company's Chairman and chief investment officer, as well as Chairman of the
Board and Chief Executive Officer of MBNA Corporation, and owned 10% of MBNA
Corporation's common stock. Mr. Lerner served as the Company's Chairman from
April 1988 through April 1993 and its chief investment officer from April 1988
until February 1993. During 1993, the Company sold its entire holding of MBNA
Corporation, realizing gains of $74,325,754.
 
                                        3

<PAGE>   6
 

                         SECURITY OWNERSHIP OF CERTAIN
                        BENEFICIAL OWNERS AND MANAGEMENT
 
     Security Ownership of Certain Beneficial Owners. The following information
is set forth with respect to persons known to management to be the beneficial
owners, as of February 11, 1994, of more than five percent of the Company's
Common Shares:
 

<TABLE>
<CAPTION>
 
                   NAME AND ADDRESS                 AMOUNT AND NATURE OF       PERCENT
                   OF BENEFICIAL OWNER              BENEFICIAL OWNERSHIP(1)     OF CLASS
     ----------------------------------------------------------------------     --------
     <S>                                            <C>                         <C>
     Peter B. Lewis.................................        10,155,411(2)         14.1%
          6300 Wilson Mills Road
          Mayfield Village, Ohio 44143
     Oppenheimer Group, Inc.........................         6,459,264(3)          9.0%
          Oppenheimer Tower
          World Financial Center
          New York, New York 10281
     Janus Capital Corporation......................         5,581,400(4)          7.7%
          100 Fillmore Street, Suite 300
          Denver, Colorado 80206-4923
     Ruane, Cunniff & Co., Inc......................         4,431,535(5)          6.1%
          767 Fifth Avenue
          Suite 4701
          New York, New York 10153
     The Equitable Life Assurance Society...........         4,138,848(6)          5.7%
          787 Seventh Avenue
          New York, New York 10019
</TABLE>

 
- - - ---------------
 
(1) Except as otherwise indicated, the persons listed as beneficial owners of
    the Common Shares have sole voting and investment power with respect to
    those shares. Certain of the information contained in this table, and the
    related footnotes, is based on the Schedule 13G filings made by the
    beneficial owners identified herein.
 
(2) Includes 185,382 Common Shares held of record by Mr. Lewis as trustee for an
    adult child, 13,257 Common Shares held for Mr. Lewis by a nominee under the
    Company's Long-Term Savings Plan, 337,500 Common Shares held by Mr. Lewis as
    trustee of a trust established for his brother and 99,976 shares held by a
    charitable corporation of which Mr. Lewis serves as a trustee and an
    officer. The amount does not include 1,759,329 Common Shares held of record
    by National City Bank as trustee of a trust established by Mr. Lewis for the
    benefit of his adult children, as to which shares he disclaims any
    beneficial interest.
 
(3) The Common Shares are held in investment accounts maintained with
    Oppenheimer Group, Inc. or affiliates and they disclaim any beneficial
    interest in such shares. Oppenheimer
 
                                        4

<PAGE>   7
 
    Group, Inc. has advised that it has shared voting and investment power as to
    all of these shares.
 
(4) The Common Shares are held by mutual funds managed by or investment accounts
    maintained with Janus Capital Corporation or affiliates and they disclaim
    any beneficial interest in such shares. Janus Capital Corporation has
    advised that it has shared voting and investment power as to all of these
    shares.
 
(5) The Common Shares are held in investment accounts maintained with Ruane,
    Cunniff & Co., Inc. and it disclaims any beneficial interest in such shares.
    Ruane, Cunniff & Co., Inc. has advised that it has sole voting power as to
    2,221,200 of these shares, no voting power as to the balance of these
    shares, sole investment power as to 2,210,335 of these shares and shared
    investment power as to 2,221,200 of these shares.
 
(6) The Common Shares are held in investment accounts maintained with The
    Equitable Life Assurance Society or affiliates and they disclaim any
    beneficial interest in such shares. The Equitable Life Assurance Society has
    advised that it has sole voting power as to 2,382,582 of these shares,
    shared voting power as to 191,200 of these shares, no voting power as to the
    balance of these shares and sole investment power as to all of these shares.
 
     Security Ownership of Management. The following information is set forth
with respect to the Company's Common Shares beneficially owned as of February
11, 1994, by all directors and nominees for election as directors of the
Company, each of the named executive officers and by all directors and executive
officers of the Company as a group:
 

<TABLE>
<CAPTION>
                                                     AMOUNT AND NATURE OF       PERCENT
                          NAME                      BENEFICIAL OWNERSHIP(1)     OF CLASS
     ----------------------------------------------------------------------     --------
     <S>                                            <C>                         <C>
     Milton N. Allen................................            49,703(2)          *
     B. Charles Ames................................            30,005(3)          *
     Charles B. Chokel..............................            70,683(4)          *
     Allan W. Ditchfield............................            47,433(5)          *
     Stephen R. Hardis..............................            25,808(3)          *
     Peter B. Lewis.................................        10,155,411(6)         14.1%
     Bruce W. Marlow................................            44,317             *
     Norman S. Matthews.............................            37,338(3)          *
     Michael C. Murr................................           616,890(7)          *
     Donald B. Shackelford..........................            78,671(3)          *
     Paul B. Sigler.................................            10,409(8)          *
     All 14 Executive Officers
       and Directors as a Group.....................        13,309,515(9)         18.2%
</TABLE>

 
- - - ---------------
 
* Less than one percent of the outstanding Common Shares of the Company.
 
                                        5

<PAGE>   8
 
(1) Includes Common Shares held for executive officers under The Progressive
    Corporation Long-Term Savings Plan and currently exercisable stock options
    held by directors and executive officers under various plans. Beneficial
    ownership of the Common Shares held by the directors and executive officers
    listed in the table is comprised of both sole voting power and sole
    investment power, or voting power and investment power that is shared with
    the spouse and/or minor children of the director or executive officer.
 
(2) Includes 2,400 Common Shares owned by Mr. Allen's wife, as to which shares
    he disclaims any beneficial interest, and 20,000 Common Shares subject to
    currently exercisable stock options.
 
(3) Includes 20,000 Common Shares subject to currently exercisable stock
    options.
 
(4) Includes 1,447 Common Shares held as custodian for his minor children, as to
    which shares he disclaims any beneficial interest.
 
(5) Includes 30,000 Common Shares subject to currently exercisable stock
    options.
 
(6) See footnote 2 on page 4.
 
(7) Includes 150,000 Common Shares owned by Eva Murr, Mr. Murr's wife, as to
    which shares he disclaims any beneficial interest, and 464,998 Common Shares
    subject to currently exercisable stock options.
 
(8) Includes 8,000 Common Shares subject to currently exercisable stock options.
 
(9) Includes 838,498 Common Shares subject to currently exercisable stock
    options.
 
     Section 16(a) Reporting. Under the Federal securities laws, the directors
and certain officers of the Company, and holders of 10% or more of the Company's
Common Shares, are required to report their ownership of the Company's Common
Shares, and any changes in such ownership, to the Securities and Exchange
Commission and New York Stock Exchange within specified time frames. The Company
is required to report in this proxy statement any failure on the part of any
such individual to timely file any such report. The Form 5 filed for Daniel R.
Lewis for 1992 inadvertently omitted to disclose two gifts totalling 100 of the
Company's Common Shares received by his two minor children in January 1992. A
supplemental filing was made with the Securities and Exchange Commission and the
New York Stock Exchange promptly after this oversight was discovered. Norman S.
Matthews' Form 5 for 1993, reporting charitable gifts totalling 250 Common
Shares, was filed 29 days late. The total of all charitable gifts reported for
David M. Schneider on his December 1993 Form 4 inadvertently omitted 4 Common
Shares. An amended Form 4 was filed promptly after this omission was discovered.
 
                                        6

<PAGE>   9
 

                             EXECUTIVE COMPENSATION
 
     The following information is set forth with respect to the Company's Chief
Executive Officer and the other four most highly compensated executive officers,
each of whom was serving as an executive officer at December 31, 1993 (the
"named executive officers").
                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                                       LONG-TERM
                                                                                                      COMPENSATION
                                                                                               --------------------------
                                                                                                         AWARDS
                                                        ANNUAL COMPENSATION                    --------------------------
                                          ------------------------------------------------                      SECURITIES
                                                                           OTHER ANNUAL         RESTRICTED      UNDERLYING
          NAME AND                          SALARY         BONUS           COMPENSATION            STOCK         OPTIONS
     PRINCIPAL POSITION          YEAR        ($)            ($)                ($)               AWARDS(1)         (#)
- - - -----------------------------    -----    ----------     ----------     ------------------     -------------    ---------
<S>                              <C>      <C>            <C>            <C>                    <C>              <C>
Peter B. Lewis                    1993    $1,000,000     $1,400,000          $127,646(2)            --            67,100
 Chairman, President              1992     1,023,077        946,000           162,703(2)            --           137,400
 and Chief Executive              1991     1,198,077             --           124,900(2)            --            75,000
 Officer
Michael C. Murr                   1993     1,001,226        892,800                --               --            37,500
 Chief Investment                 1992       473,523             --                --               --                --
 Officer (hired 7/1/92)           1991            --             --                --               --                --
Bruce W. Marlow                   1993       558,040        892,800                --               --            37,500
 Chief Operating                  1992       551,286        465,300                --               --            72,000
 Officer                          1991       549,712        150,000                --               --            45,000
Charles B. Chokel                 1993       275,000        385,000                --               --            11,500
 Chief Financial                  1992       261,539        252,120                --               --            16,500
 Officer                          1991       249,712         70,000                --               --            30,000
Allan W. Ditchfield               1993       400,000        200,000                --               --            10,500
 Chief Information                1992       400,000        118,300                --               --            16,500
 Officer (hired 3/6/91)           1991       320,000        100,000                --               --           150,000
 
<CAPTION>
 
                                   ALL OTHER
          NAME AND                COMPENSATION
     PRINCIPAL POSITION               ($)
- - - -----------------------------  ------------------
<S>                              <C>
Peter B. Lewis                      $     --
 Chairman, President                      --
 and Chief Executive                      --
 Officer
Michael C. Murr                        4,861(3)
 Chief Investment                      7,162
 Officer (hired 7/1/92)                   --
Bruce W. Marlow                        6,704(4)
 Chief Operating                       5,305
 Officer                               6,025
Charles B. Chokel                      6,558(5)
 Chief Financial                       6,806
 Officer                              62,598(6)
Allan W. Ditchfield                    6,923(5)
 Chief Information                     6,200
 Officer (hired 3/6/91)              116,212(7)
</TABLE>

 
- - - ---------------
 
(1) No restricted stock awards were granted to the named executive officers
    during the last three years. As of December 31, 1993, there were no unvested
    restricted stock holdings.
 
    During 1993, the named executive officers became vested in restricted stock
    as follows: Mr. Lewis, 45,000 shares which had a net realized value at date
    of vesting of $1,822,500; Mr. Marlow, 32,172 shares which had a net realized
    value at date of vesting of $1,302,966; and Mr. Chokel, 12,000 shares which
    had a net realized value at date of vesting of $486,000.
 
(2) Other Annual Compensation includes $96,588, $130,523 and $67,484 in the form
    of personal use of corporate aircraft in 1993, 1992 and 1991, respectively.
 
(3) Represents $4,112 of employer matching contributions paid during 1993 under
    the Company's Long-Term Savings Plan and $749 of employer contributions paid
    during 1993 under the Company's Supplemental Retirement Plan.
 
(4) Represents $6,439 employer matching contributions paid during 1993 under the
    Company's Long-Term Savings Plan and $265 as an anniversary award for 15
    years of employment with the Company.
 
(5) Represents employer matching contributions paid during 1993 under the
    Company's Long-Term Savings Plan.
 
(6) Represents a $22,833 relocation bonus, $34,634 reimbursement of moving
    expenses and $5,131 of employer matching contributions paid during 1991
    under the Company's Long-Term Savings Plan.
 
(7) Represents an $83,333 relocation bonus, $28,725 reimbursement for moving
    expenses and $4,154 of employer matching contributions paid during 1991
    under the Company's Long-Term Savings Plan.
 
                                        7

<PAGE>   10
 
                     OPTION/SAR GRANTS IN LAST FISCAL YEAR
 

<TABLE>
<CAPTION>
                                INDIVIDUAL GRANTS                                       POTENTIAL REALIZABLE
- - - ----------------------------------------------------------------------------------     VALUE AT ASSUMED ANNUAL
                           NUMBER OF                                                    RATES OF STOCK PRICE
                           SECURITIES     % OF TOTAL                                   APPRECIATION FOR OPTION
                           UNDERLYING      OPTIONS                                              TERM
                            OPTIONS       GRANTED TO     EXERCISE                     -------------------------
                            GRANTED       EMPLOYEES        PRICE       EXPIRATION         5%            10%
          NAME                (#)          IN 1993       ($/SHARE)        DATE           ($)            ($)
- - - -------------------------  ----------     ----------     ---------     -----------    ----------     ----------
<S>                        <C>            <C>            <C>           <C>            <C>            <C>
Peter B. Lewis               67,100(1)        9.7%        $29.625       12/31/2002    $1,173,244     $2,933,948
Michael C. Murr              37,500(1)        5.4          29.625       12/31/2002       655,688      1,639,688
Bruce W. Marlow              37,500(1)        5.4          29.625       12/31/2002       655,688      1,639,688
Charles B. Chokel            11,500(1)        1.7          29.625       12/31/2002       201,078        502,838
Allan W. Ditchfield          10,500(1)        1.5          29.625       12/31/2002       183,593        459,113
</TABLE>

 
   ------------------
 
   (1) Options become exercisable 1/1/98.
              AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                     AND FISCAL YEAR-END OPTION/SAR VALUES
 

<TABLE>
<CAPTION>
                                                               NUMBER OF SECURITIES
                                                                    UNDERLYING            VALUE OF UNEXERCISED
                                                                UNEXERCISED OPTIONS           IN-THE-MONEY
                                   SHARES                           AT 12/31/93           OPTIONS AT 12/31/93
                                ACQUIRED ON        VALUE                (#)                       ($)
                                  EXERCISE       REALIZED          EXERCISABLE/               EXERCISABLE/
            NAME                    (#)             ($)            UNEXERCISABLE             UNEXERCISABLE
- - - ----------------------------    ------------    -----------    ---------------------    ------------------------
<S>                             <C>             <C>            <C>                      <C>
Peter B. Lewis                       --             --         Exercisable         0    Exercisable   $       0
                                                               Unexercisable 354,500    Unexercisable 8,008,083
Michael C. Murr                      --             --         Exercisable   464,998    Exercisable  15,105,844
                                                               Unexercisable  77,502    Unexercisable 1,533,713
Bruce W. Marlow                      --             --         Exercisable         0    Exercisable           0
                                                               Unexercisable 199,500    Unexercisable 4,513,397
Charles B. Chokel                    --             --         Exercisable         0    Exercisable           0
                                                               Unexercisable  88,000    Unexercisable 2,073,296
Allan W. Ditchfield                60,000       $1,362,540     Exercisable    30,000    Exercisable     625,020
                                                               Unexercisable  87,000    Unexercisable 1,867,421
</TABLE>

 
                                        8

<PAGE>   11
 
                                 PENSION PLANS
 
     Messrs. Peter B. Lewis, Marlow and Chokel, as well as substantially all
other full-time employees of the Company and its subsidiaries who were hired
before January 1, 1989 and satisfy certain other requirements, are eligible to
participate in The Progressive Pension Plan (the "Pension Plan"). The Pension
Plan is a defined benefit plan within the meaning of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), is a qualified plan under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code") and
is subject to the minimum funding standards of Section 412 of the Code.
 
     Benefits payable under the Pension Plan are determined pursuant to a
formula based upon a participant's years of service with the Company and its
subsidiaries, the participant's average annual compensation not in excess of the
Social Security taxable wage base during such years of service ("Average
Earnings") and Social Security benefits. For purposes of determining Average
Earnings, the Pension Plan recognizes base salary, overtime earnings, cash
bonuses and commissions. The benefit formula is: 2% of Average Earnings times
years of service minus 50% of primary Social Security benefit for years of
service through December 31, 1988, plus 1.3% of Average Earnings times years of
service after that date.
 
     Participants accrue benefits under the Pension Plan formula over their
years of service with the Company and its subsidiaries, and become fully vested
in their accrued benefits under the Pension Plan upon (i) completion of 5 years
of service (subject to certain break-in-service rules); (ii) attainment of age
65; or (iii) retirement on account of permanent and total disability.
 
     The estimated net annual pensions (expressed as a life and 120-month
certain annuity) payable upon retirement at normal retirement age (65) under the
Pension Plan for each of the three named executive officers who participate in
the Pension Plan are as follows: Mr. Lewis, $10,188; Mr. Marlow, $8,983; and Mr.
Chokel, $9,042.
 
     Messrs. Ditchfield and Murr, as well as substantially all other full-time
employees who were hired on or after January 1, 1989 and satisfy certain other
requirements, participate in The Progressive Corporation Supplemental Retirement
Plan, a defined contribution plan within the meaning of ERISA and a qualified
plan under the Code. The contributions made by the Company in 1993 for Mr. Murr
is included in "All Other Compensation" in the Summary Compensation Table on
page 7. No contribution was made by the Company for Mr. Ditchfield during 1993.
 
     As of December 31, 1993, all benefit accruals under the Pension Plan were
frozen. Effective January 1, 1994, the Supplemental Retirement Plan was amended
to include all employees who previously participated in the Pension Plan and who
meet requirements as to age and length of service. As a result, all named
executive officers now participate in the Supplemental Retirement Plan. Under
the amended plan, contributions vary from one percent to five percent of
compensation up to the Social Security wage base, based on years of eligible
service.
 
                                        9

<PAGE>   12
 
                                SEPARATION PLANS
 
     The named executive officers, as well as substantially all other regular,
non-temporary employees of the Company and its subsidiaries, are eligible to
participate in The Progressive Corporation Separation Allowance Plan (the
"Separation Plan"). The Separation Plan provides payments to eligible employees
whose employment is involuntarily terminated as a result of a reduction in force
or a reorganization, as defined in the Separation Plan. Payments are based on
compensation in effect immediately prior to termination and years of service and
cannot exceed an aggregate of two years of compensation. The Separation Plan is
a welfare benefit plan within the meaning of ERISA. All payments under the
Separation Plan are made from the general assets of the Company and its
subsidiaries. Individual employment or separation arrangements may supplement or
supersede the Separation Plan in whole or in part.
 
     The Company has entered into a separate arrangement with Mr. Ditchfield,
pursuant to which he would be entitled to receive one year's salary plus a
prorated bonus, if the Company were to terminate his employment prior to January
1, 1995 without just cause. These payments would be in lieu of any payments
otherwise payable to him under the Separation Plan upon any termination of
employment.
 
                           DIRECTORS' FEES AND PLANS
 
     Each member of the Board of Directors who is not an employee of the Company
currently receives an annual director's fee of $8,000 ("Retainer Fee"). In
addition, each such director receives fees for attendance at meetings of the
Board and those committees of the Board of which he is a member ("Meeting Fee").
Directors currently receive $3,000 for attendance at each of the four regular
meetings of the Board and $1,000 for attendance at each special meeting, unless
attendance is by telephone, in which case the fee is $500. Each member of a
Board committee receives $750 for attendance at each meeting of the committee,
except that the committee chairman receives $1,000 for attendance at each such
meeting.
 
     Each director of the Company who is not an employee of the Company
participates in The Progressive Corporation Directors Deferral Plan, as amended
(the "Directors Deferral Plan"). Each participant in the Directors Deferral Plan
may elect, annually, to defer receipt of all or a portion of his Meeting Fees
for the following year until the earlier of the date designated by the director
in accordance with the Directors Deferral Plan or the date of his death. A
participating director may elect to have such deferred fees credited to or
allocated between (a) a cash account which will bear interest at a rate equal to
the rate of interest on new 3-month certificates of deposit, and (b) a stock
account under which the deferred fees are converted into units equivalent in
value and dividend rights to the Company's Common Shares. All such accounts will
be distributed in cash, in a lump sum or installments, when and as designated by
the participating director at the time of election. All directors' Retainer Fees
are deferred, credited to a stock account and distributed in cash on any date
designated by the participating director which is on or after the later of (a)
the date of the expiration of the director's then current term or (b) the date
which is six months and one day after the date such fees are credited to the
director's stock account ("Minimum Deferral Date") or, if no such designation is
 
                                       10

<PAGE>   13
 
made, the first day of the calendar quarter immediately following the Minimum
Deferral Date. All account balances of a director will be distributed to his
beneficiary, if he dies. However, if any director ceases to serve as such for
any reason other than death, disability or removal without cause prior to the
expiration of his term, all Retainer Fees credited to his stock account during
such term are forfeited.
 
     Each director who is not an employee of the Company is eligible to be
granted awards under The Progressive Corporation 1990 Directors' Stock Option
Plan, as amended (the "Directors' Stock Plan"). The Directors' Stock Plan
authorizes the issuance of up to 450,000 Common Shares, subject to adjustment
for stock splits and similar events. Promptly after each Annual Meeting of
Shareholders, each participating director receives an option to purchase 2,000
Common Shares at an exercise price equal to the fair market value of the Common
Shares on the day of such Annual Meeting. The term of each such stock option is
ten years commencing on the date of grant. Options become exercisable six months
and one day following the date of grant and are not transferable. Upon death, to
the extent then otherwise exercisable, a stock option may be exercised for a
period of one year. During 1993, the Company granted stock options under this
plan covering an aggregate of 12,000 shares to six directors.
 
 
                   EXECUTIVE COMPENSATION COMMITTEE REPORT
 
EXECUTIVE COMPENSATION POLICY
 
     The Company's executive compensation program is administered under the
direction of the Executive Compensation Committee of the Board of Directors (the
"Committee"). The Committee is comprised of three independent, nonemployee
directors. The executive compensation program is designed to promote the
following objectives:
 
     - Attract, retain and motivate executives who can significantly contribute
       to the success of the Company.
 
     - Reward the achievement of corporate objectives that have been approved by
       the Board.
 
     - Provide a fair, rational and competitive executive compensation system.
 
     The Committee believes that if these objectives are consistently achieved,
shareholder value will be enhanced over time.
 
EXECUTIVE COMPENSATION PROGRAM
 
     For 1993, the Company's executive compensation program was designed to base
compensation on corporate, division and individual performance. Performance
objectives and related measurements, as well as the compensation awards that
would result from various levels of performance, were clearly defined in
advance.
 
     The executive compensation program consists of three components: salary,
annual bonus and long-term incentives through equity-based awards. Variable
compensation (consisting of annual bonus and long-term incentive awards) is a
larger component of total compensation at
 
                                       11

<PAGE>   14
 
more senior levels in the organization. For each executive officer, a target
amount is established for each component of variable compensation. Target
amounts are determined primarily by reference to data contained in published
national compensation surveys. These surveys include compensation data for a
broad range of public companies in a variety of industries. Since the Company
competes for executive level personnel on a nationwide basis with companies in a
variety of industries, the compensation data utilized are not limited to
companies included in the P/C Group referred to on page 16. The Company's policy
is to pay its officers and employees competitive salaries (i.e. within 20% of
the midpoint of the market range of salaries for their respective positions) and
to provide variable compensation which can take total direct compensation to or
above the high end of the market range when the Company, division and individual
meet or exceed challenging performance goals.
 
     A phase-out of most officer perquisites, such as company cars and extended
health care coverage, began in early 1992. In addition to the executive
compensation program, executive officers participate in the Company's health and
retirement plans which are available to all regular employees of the Company on
the same basis.
 
Salary Component
 
     Executive officers receive a salary based on their responsibilities and
potential at market levels indicated by compensation survey data. The Company's
objective is to set executive salaries to be within 20% of the midpoint of the
market range of salaries for comparable positions. Salaries are reviewed
annually and adjusted for changes in those factors.
 
Annual Bonus Component
 
     In 1993, the named executive officers and approximately 265 other
management employees of the Company participated in the Management Bonus Plan,
which was designed to reward participants appropriately for current corporate,
division and individual performance.
 
     Under the Management Bonus Plan, a target annual bonus amount, which varied
by position, was established for each executive. For Messrs. Lewis, Marlow and
Chokel, the target annual bonus amount for 1993 equaled 80% of salary. For the
other named executive officers, the target annual bonus amount equaled various
amounts up to 45% of salary. Actual awards could range from 0% to 200% of the
target annual bonus amount, depending on performance.
 
     The 1993 annual bonus award was determined by both quantitative and
qualitative criteria. For the named executive officers, the quantitative
component comprised 60% or more of the annual bonus opportunity for 1993. This
component was determined by using a performance matrix ("Management Performance
Matrix") which assigned a performance score to various combinations of
profitability and growth outcomes. Profitability was measured by the combined
ratio ("COR") for continuing operations, determined in accordance with generally
accepted accounting principles ("GAAP"). Growth was measured in terms of the
year-to-year increase in net premiums written. For executives assigned to a
specific division, the performance of both the Company as a whole and the
particular division was taken into account. A performance
 
                                       12

<PAGE>   15
 
score of 1.0 resulted if designated profitability and growth goals were met.
Higher rates of profitability and growth resulted in higher scores on the
Management Performance Matrix and, thus, in larger awards for the quantitative
component of the annual bonus. Lower rates of profitability and growth would
result in lower performance scores and awards for this component.
 
     For the named executive officers, the qualitative component comprised up to
40% of the annual bonus opportunity for 1993. This component was based on an
assessment of the individual executive's performance during the year. Each such
executive had specific performance objectives for the year and, at year end, his
performance was evaluated against those objectives. Consideration was also given
to the impact on the Company of the executive's initiatives and contributions
made by the executive beyond the scope of his defined performance objectives.
 
     The Management Bonus Plan was terminated on December 31, 1993 and, for
certain senior executives, was replaced by the 1994 Executive Bonus Plan, a
description of which is contained on pages 16 through 21 hereof. Messrs. Chokel,
Lewis, Marlow and Murr will participate in the 1994 Executive Bonus Plan, if the
proposal set forth at Item 2 is approved by shareholders. Two other executive
officers currently participate in such Plan, but their participation is not
subject to a shareholder approval requirement. All other officers and regular
employees of the Company, including Mr. Ditchfield and one other executive
officer, participate in the Company's 1994 Gainsharing Plan. The 1994
Gainsharing Plan is substantially similar to the 1994 Executive Bonus Plan, but
does not include performance criteria for Return on Average Shareholders' Equity
or Investment Performance.
 
Long-Term Incentive Component
 
     In 1993, the executive compensation program included long-term incentives
through the grant of nonqualified stock options. This component is designed to
encourage the long-term retention of key executives and to align executive
compensation directly with the long-term enhancement of shareholder value. Stock
option grants are intended to focus the executive on managing the Company from
the perspective of an owner. The named executive officers and approximately 195
other management employees of the Company currently participate in the long-term
incentive program.
 
     The value of a stock option depends directly on the future performance of
the Company's Common Shares, since it has value to the recipient only if and to
the extent that the price of the Company's Common Shares increases above the
exercise price. Stock option awards are normally made annually. A target award
value, which varies by position, is established for each executive officer in
order to bring total targeted compensation to the 90th percentile of the market.
In 1993, for the executive officers, these target award values ranged from
31%-80% of salary, depending on job classification. The target award value is
then divided by a value per share developed through the Black-Scholes pricing
model, to determine the number of option shares to be awarded. In 1993, the
pricing model valued the stock options at $11.914 per share, which is 40.21% of
the per share exercise price of $29.625. The following assumptions were
 
                                       13

<PAGE>   16
 
used to derive the ratio: 10-year option term, .20 annualized volatility rate,
6.00% risk free rate of return and 1.10% dividend yield. The stock options
generally have an exercise price which is equal to the market price of the
Company's Common Shares on the date of grant, contain provisions which defer
vesting of the options for five years and may be exercised at any time during
the five years following vesting.
 
CHIEF EXECUTIVE OFFICER COMPENSATION
 
     Peter B. Lewis, the Company's Chief Executive Officer, received cash
compensation in the amount of $2,400,000 for 1993, consisting of a salary of
$1,000,000 and an annual bonus award of $1,400,000, in addition to the non-cash
compensation disclosed in the Summary Compensation Table and related footnotes
on page 7.
 
     Mr. Lewis' annual bonus target for 1993 was $800,000, an amount equal to
80% of his salary. For Mr. Lewis, the quantitative component comprised 75% of
the bonus opportunity and the qualitative component comprised 25%. In 1993, the
Company's continuing operations achieved a COR of 89, with 24.5% premium growth,
as compared to 95 and 6.3% respectively, in 1992, resulting in a performance
score of 2.0 on the Management Performance Matrix. Mr. Lewis therefore earned
200% of target, or $1,200,000, for the quantitative component of his annual
bonus opportunity. With respect to the qualitative component, the Committee
determined that Mr. Lewis' performance for 1993 met expectations in relation to
his performance objectives. He therefore was awarded $200,000, or 100% of
target, for the qualitative component of his annual bonus opportunity. In
reaching this determination, the Committee specifically noted continued progress
in reducing expenses, controlled experimentation in the auto product line,
improving service and actions taken to resolve the role of the Company's
diversified businesses.
 
     For the long-term incentive component of his compensation, on June 18,
1993, Mr. Lewis was awarded stock options to purchase 67,100 of the Company's
Common Shares at an exercise price of $29.625 per share. This award vests on
January 1, 1998, and was determined in accordance with the stock option formula
described above.
 
     45,000 Common Shares previously awarded to Mr. Lewis under the 1985
Restricted Stock Plan vested in 1993. This award, which was made during 1988,
was subject to restriction until December 31, 1993. When this award was made,
the Company's Common Shares had a value, adjusted to reflect the 3-for-1 stock
split effected on December 8, 1992, of $10.08 per share.
 
OMNIBUS BUDGET RECONCILIATION ACT OF 1993
 
     In 1993, the Internal Revenue Code was amended by the Omnibus Budget
Reconciliation Act of 1993 ("Budget Reconciliation Act"), which limits to $1
million per year the deduction allowed for Federal income tax purposes for
compensation paid to the chief executive officer and the four other most highly
compensated executive officers of a public company ("Deduction Limit"). This
Deduction Limit, which is effective beginning in 1994, does not apply to
compensation paid under a plan that meets certain requirements for
"performance-based compensation". To qualify for this exception, (a) the
compensation must be payable on account of the
 
                                       14

<PAGE>   17
 
attainment of one or more pre-established objective performance goals; (b) the
performance goals must be established by a compensation committee of the board
of directors that is comprised solely of two or more "outside directors"; (c)
the material terms of the compensation and the performance goals must be
disclosed to and approved by shareholders before payment; and (d) the
compensation committee must certify in writing that the performance goals have
been satisfied before payment. It is the Company's policy to structure its
incentive compensation programs to satisfy the requirements for the
"performance-based compensation" exception to the Deduction Limit and, thus, to
preserve the full deductibility of all compensation paid thereunder, to the
extent practicable. Salaries and any perquisites are subject to approval of the
Committee, but will not be submitted to a vote of shareholders, and thus will
not be deductible if and to the extent that such compensation exceeds $1 million
per year for any such executive.
 
SUMMARY
 
     The Committee believes that management compensation should be directly
linked to changes in shareholder value. The Company's executive compensation
program thus includes significant long-term incentives, through equity-based
awards, which are tied to the long-term performance of the Company's Common
Shares. The Committee recognizes, however, that while stock prices may reflect
management performance over the long term, other factors, such as general
economic conditions and varying investors' attitudes toward the stock market in
general, and specific industries in particular, may significantly affect stock
prices at any point in time. Accordingly, the annual cash components of the
program, consisting of salary and annual bonus, emphasize individual performance
and the realization of defined business objectives, which are independent of
short-range fluctuations in the stock price.
 
     The executive compensation program thus has been designed to align
executive compensation with both the Company's business goals and long-term
shareholder interests. The Committee believes that the program, as implemented,
is balanced and consistent with these objectives. The Committee will continue to
monitor the operation of the program and cause the program to be adjusted and
refined, as necessary, to ensure that it continues to support both corporate and
shareholder goals.
 
                                        EXECUTIVE COMPENSATION COMMITTEE
 
                                        Donald B. Shackelford, Chairman
                                        Milton N. Allen
                                        Norman S. Matthews
 
                                       15

<PAGE>   18
 
                               PERFORMANCE GRAPH
 
     The following performance graph compares the performance of the Company's
Common Shares ("PGR") to the Standard & Poor's 500 Index ("S&P Index") and the
Value Line Property/Casualty Industry Group ("P/C Group") for the last five
years.
 
                      CUMULATIVE FIVE-YEAR TOTAL RETURNS*
 
                           PGR, S&P INDEX, P/C GROUP
                     (PERFORMANCE RESULTS THROUGH 12/31/93)
 

<TABLE>
<CAPTION>
      MEASUREMENT PERIOD
    (FISCAL YEAR COVERED)             PGR          S&P INDEX       P/C GROUP
<S>                              <C>             <C>             <C>
1988                                    100.00          100.00          100.00
1989                                    169.63          131.49          144.67
1990                                    228.30          127.32          144.43
1991                                    242.92          166.21          182.32
1992                                    396.76          179.30          232.49
1993                                    554.70          197.23          225.83
</TABLE>

 
Assumes $100 invested at the close of trading on December 31, 1988 in PGR, S&P
Index and P/C Group.
*Assumes reinvestment of dividends.
 
Source: Value Line, Inc.
 
I
TEM 2:  PROPOSAL TO APPROVE THE PROGRESSIVE CORPORATION 1994
         EXECUTIVE BONUS PLAN AS IT APPLIES TO CERTAIN EXECUTIVE
         OFFICERS
 
GENERAL
 
     The Executive Compensation Committee of the Board of Directors approved The
Progressive Corporation 1994 Executive Bonus Plan as of March 18, 1994, and has
directed that the 1994 Executive Bonus Plan, as it applies to Charles B. Chokel,
Peter B. Lewis, Bruce W. Marlow and Michael C. Murr (the "Plan"), be submitted
to the Company's shareholders for approval. Messrs. Chokel, Lewis, Marlow and
Murr are referred to herein as the "senior participants". The
 
                                       16

<PAGE>   19
 
description herein is a summary of the Plan and is subject to and qualified by
the complete text of the Plan.
 
     The Company has designed an executive compensation program consisting of
the following components: salary, annual bonus and stock options or other
equity-based awards. The program is structured to reflect the market for
executive compensation and to promote both the achievement of corporate goals,
as approved by the Board, and performance that is in the long-term interests of
shareholders. While stock options or other equity-based awards reflect the
long-term value created for shareholders, the annual bonus component focuses on
current operating and investment results. If approved by shareholders, the Plan
will provide the annual bonus component of total compensation for the senior
participants.
 
     The Plan is being submitted to the Company's shareholders for approval
pursuant to the requirements of the Budget Reconciliation Act. The Budget
Reconciliation Act amended the Internal Revenue Code by adding a new Section
162(m), which limits to $1 million per year the deduction allowed for Federal
income tax purposes for compensation paid to a "covered employee" of a public
company ("Deduction Limit"). Under Section 162(m), the term "covered employee"
includes the chief executive officer and the four other most highly compensated
executive officers. The Deduction Limit, which is effective beginning in 1994,
applies to compensation which does not qualify for any of the limited number of
exceptions provided for in Section 162(m) ("nonqualified compensation").
 
     Under Section 162(m), the Deduction Limit does not apply to compensation
paid under a plan that meets certain requirements for "performance-based
compensation". To qualify for this exception, the following requirements must be
met: (a) the compensation must be payable on account of the attainment of one or
more pre-established objective performance goals; (b) the performance goals must
be established by a compensation committee of the board of directors that is
comprised solely of two or more "outside directors"; (c) the material terms of
the compensation and performance goals must be disclosed to and approved by
shareholders before payment; and (d) the compensation committee must certify in
writing that the performance goals have been satisfied prior to payment.
 
     It is the Company's policy to structure its incentive compensation programs
to satisfy the requirements for the "performance-based compensation" exception
to the Deduction Limit and, thus, to preserve the full deductibility of all
compensation paid thereunder, to the extent practicable. As a consequence, the
Committee has directed that the Plan be submitted to the Company's shareholders
for approval in accordance with the requirements for the "performance-based
compensation" exception to the Deduction Limit. If the Plan is approved by
shareholders, the senior participants will be entitled to participate in the
Plan and compensation paid to such participants under the Plan will not be
subject to the Deduction Limit. If the shareholders fail to approve the Plan,
the senior participants will not be entitled to participate therein or to
receive any payments thereunder. However, if the shareholders fail to approve
the Plan, the Committee may consider adopting an alternative bonus program
without shareholder approval, even though some or all of the payments made
thereunder may be subject to the
 
                                       17

<PAGE>   20
 
Deduction Limit, in order to maintain the competitiveness of the Company's
executive compensation program.
 
     Two other executive officers of the Company currently participate in the
1994 Executive Bonus Plan; however, their right to participate in that plan is
not being submitted to shareholders for approval since it is not anticipated
that the total nonqualified compensation of either of those officers will exceed
the Deduction Limit in the near future.
 
ADMINISTRATION
 
     The Plan is administered by the Executive Compensation Committee of the
Board of Directors, which consists of three Board members, all of whom are
"outside directors", as defined under Section 162(m). The Committee has full
authority to determine the manner in which the Plan will operate, to interpret
the provisions of the Plan and to make all determinations thereunder. In
addition, the Committee has authority to adopt, amend and repeal such rules,
guidelines, procedures and practices governing the Plan as it shall, from time
to time, deem advisable.
 
ELIGIBILITY
 
     Participation in the 1994 Executive Bonus Plan is limited to executive
officers of the Company. The Committee has authority to select those executive
officers who will participate in such plan, subject to a possible shareholder
approval requirement in the case of executive officers whose total nonqualified
compensation may exceed the Deduction Limit. There are currently eight executive
officers of the Company. Six executive officers, including the four senior
participants, currently participate in the 1994 Executive Bonus Plan.
 
PLAN OPERATION
 
     The Plan has been designed to link pay directly to performance. Annual
bonuses paid under the Plan ("Annual Bonuses") will be determined by application
of the following formula:
 
      Annual Bonus = Salary Paid X Target Percentage X Performance Factor
 
     Salaries are established by the Committee prior to commencement of the Plan
year (or prior to April 1, 1994, with respect to the 1994 Plan year) and are
determined by market analysis, based on data reported in published national
compensation surveys.
 
     For each participant, a Target Percentage is selected based on market data
and is intended to bring cash compensation to the 90th percentile of the market
when specified performance goals are met. Total cash compensation can exceed the
market range if the specified performance goals are exceeded. For 1994, the
Target Percentages for the senior participants range from 80% to 167%. The
Target Percentages may be changed from year to year by the Committee, consistent
with the provisions of Section 162(m) and the regulations promulgated
thereunder.
 
                                       18

<PAGE>   21
 
     Under the Plan, the performance of each participant is measured by selected
performance criteria, which may include Core Business Gainsharing, Return on
Average Shareholders' Equity ("ROE") and Investment Performance, as described
below ("Bonus Components"). For each participant, an appropriate combination of
Bonus Components is selected based on the nature and scope of such participant's
assigned responsibilities.
 
     The selected Bonus Components are assigned various weights by the
Committee, which may vary among participants and may be changed from year to
year by the Committee. The sum of the weighted performance scores for each of
the Bonus Components assigned to a given participant equals the Performance
Factor for that participant. The Performance Factor will equal 1.0 if specified
performance goals are met, and can vary from 0 to 2.0 based on actual
performance versus the pre-established objectives.
 
     The Core Business Gainsharing Component consists of a Profitability and
Growth Factor and a Cost Structure Improvement Factor and measures overall
operating performance for the Company's core personal and commercial automobile
insurance business ("Core Business") for the Plan year. For purposes of this
Bonus Component, operating performance is measured by a Gainsharing Matrix, as
established by the Committee for the Plan year, which assigns a performance
score to various combinations of profitability and growth outcomes. Under the
Gainsharing Matrix, profitability is measured by the GAAP combined ratio and
growth is measured by the year-to-year change in market share. The Cost
Structure Improvement Factor measures success in achieving cost structure
improvement by comparing the sum of the GAAP underwriting expense ratio and the
loss adjustment expense ratio achieved for the Company's Core Business during a
given Plan year against expense targets which have been pre-established by the
Committee. For purposes of determining a performance score for the Core Business
Gainsharing Component, each such Factor is assigned a different weight by the
Committee. For 1994, the Profitability and Growth Factor is weighted 70% and the
Cost Structure Improvement Factor is weighted 30%. The relative weighting of
such Factors may be changed from year to year by the Committee.
 
     The Plan contains a ROE Component, which measures the actual return on
average shareholders' equity achieved by the Company for a given Plan year, net
of inflation, against a series of pre-established performance scores. For 1994,
an inflation adjusted ROE of 15% is necessary to achieve a performance score of
1.0; a higher (or lower) ROE will result in a higher (or lower) performance
score for this Bonus Component. ROE performance targets and resulting scores for
the ROE Component may be revised from year to year by the Committee.
 
     The Investment Performance Component measures overall performance for the
Company's investment activities. Initially, investment results for the
individual segments of the Company's investment portfolio are compared against
pre-established benchmarks. The resulting performance scores for the various
segments are weighted by the amounts invested from time to time in each of the
respective segments and the weighted performance scores are combined to produce
an Investment Performance Score that reflects the overall investment performance
of the portfolio. Segment classifications and benchmarks may be changed from
year to year by the Committee.
 
                                       19

<PAGE>   22
 
     The Annual Bonus payable to any participant under the Plan with respect to
any Plan year may not exceed $2,000,000.00.
 
     For 1994, the maximum amount of benefits that may be paid to the senior
participants, and to all participating executives as a group, under the 1994
Executive Bonus Plan are as follows:
 
                               NEW PLAN BENEFITS
 
             THE PROGRESSIVE CORPORATION 1994 EXECUTIVE BONUS PLAN
 

<TABLE>
<CAPTION>
                                                                      MAXIMUM BENEFIT
                            NAME AND POSITION                          FOR 1994 ($)
     ---------------------------------------------------------------  ---------------
     <S>                                                              <C>
     Peter B. Lewis
       Chairman, President and Chief
       Executive Officer............................................    $ 1,440,000
     Michael C. Murr
       Chief Investment Officer.....................................      1,878,750
     Bruce W. Marlow
       Chief Operating Officer......................................        892,864
     Charles B. Chokel
       Chief Financial Officer......................................        440,800
     Executive Group,
       consisting of six participants...............................      5,107,954
</TABLE>

 
AMENDMENTS AND TERMINATION
 
     The Committee, in its sole discretion, may at any time terminate, amend or
revise the Plan in whole or in part; provided that any amendment or revision to
the Plan which requires shareholder approval pursuant to Section 162(m) of the
Code shall be subject to approval by the Company's shareholders. The Committee,
without shareholder approval, may modify or change the performance targets for
any Bonus Component, and the relative weighting of Bonus Components, from year
to year.
 
OTHER MATERIAL PROVISIONS
 
     The Annual Bonus shall be paid in two installments. The first installment,
in an amount equal to 90% of the Annual Bonus, calculated as described above,
will be paid to participants as soon as practicable after the Committee has
certified performance results for the Plan year, but no later than the March 31
immediately following the end of the Plan year. The second installment, in an
amount equal to 10% of the Annual Bonus, will be paid to participants on the
September 30 immediately following the end of the Plan year.
 
                                       20

<PAGE>   23
 
     Unless otherwise determined by the Committee, in order to be entitled to
receive any installment of the Annual Bonus for any Plan year, the participant
must be employed by the Company on the date designated for the payment thereof.
 
     The right to an Annual Bonus shall not be transferred, assigned or
encumbered by any participant.
 
     The Plan has been adopted, and will be effective, as of January 1, 1994,
subject to shareholder approval. If approved by shareholders, the Plan will be
effective for 1994 and for each calendar year thereafter unless and until
terminated by the Committee.
 
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
 
     Effective January 1, 1994, the Company will not be entitled to deduct
annual compensation in excess of $1 million paid to any "covered employee"
unless such compensation meets the requirements for "performance-based
compensation," as specified in Section 162(m) of the Code and the regulations
promulgated thereunder. To meet such requirements, the compensation must be
payable because of the attainment of objective performance goals established by
a compensation committee of the board of directors that is comprised solely of
two or more "outside directors" and approved by the shareholders after
disclosure to them of the material terms of the performance goals and the
compensation payable under the plan. Further, before payment, the compensation
committee must certify in writing that the performance goals have been
satisfied.
 
     The Plan was established by the Committee, which is comprised solely of
three "outside directors," and is being submitted to shareholders for approval
as it pertains to the senior participants. If the shareholders approve the Plan
as it pertains to such participants and the Committee subsequently certifies the
attainment of the performance goals applicable to any participant, the Company's
deduction of payments made to such participant under the Plan will not be
subject to the Deduction Limit.
 
VOTE REQUIRED FOR APPROVAL
 
     The affirmative vote of a majority of the shares voting on this proposal,
with abstentions and broker non-votes not counting as voting, is required for
approval.
 
 
    THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THIS
PROPOSAL.
 
                            INDEPENDENT ACCOUNTANTS
 
     At the meeting of the Board of Directors of the Company held February 5,
1994, the Board selected Coopers & Lybrand to serve as the independent
accountants for the Company and its subsidiaries for the year 1994.
Representatives of Coopers & Lybrand are expected to be present at the Annual
Meeting with the opportunity to make a statement about the Company's financial
condition, if they desire to do so, and to respond to appropriate questions.
 
                                       21

<PAGE>   24
 
                             SHAREHOLDER PROPOSALS
 
     Any shareholder who intends to present a proposal at the 1995 Annual
Meeting of Shareholders for inclusion in the proxy statement and form of proxy
relating to that meeting is advised that the proposal must be received by the
Company at its principal executive offices located at 6300 Wilson Mills Road,
Mayfield Village, Ohio 44143, not later than November 22, 1994. The Company will
not be required to include in its proxy statement or form of proxy any
shareholder proposal which is received after that date or which otherwise fails
to meet requirements for shareholder proposals established by regulations of the
Securities and Exchange Commission.
 
                          SHAREHOLDER VOTE TABULATION
 
     Votes will be tabulated by or under the direction of Inspectors of Election
who will certify the results at the Annual Meeting. Generally, under Ohio
corporation law, those director nominees who receive the greatest number of
votes at a shareholder meeting at which a quorum exists will be elected
directors. The Proposal set forth in Item 2 will be adopted if approved by the
affirmative vote of a majority of the votes cast on such Proposal, in person or
by proxy, at a meeting at which a quorum exists. For such purpose, abstentions
and broker non-votes are not counted as voting. Accordingly, abstentions and
broker non-votes will be counted in determining the number of shares present or
represented at the Annual Meeting for purposes of determining whether a quorum
exists, but assuming a quorum exists, will not affect the outcome of the vote on
either the election of directors or the Proposal set forth in Item 2.
 
                                 OTHER MATTERS
 
     The solicitation of proxies is made by and on behalf of the Board of
Directors. The cost of the solicitation, including the reasonable expenses of
brokerage firms or other nominees for forwarding proxy materials to beneficial
owners, will be borne by the Company. In addition to solicitation by mail,
proxies may be solicited by telephone, telegraph or personally. The Company has
engaged the firm of Morrow & Co., New York, New York, to assist it in the
solicitation of proxies at an estimated cost of $13,000. Proxies may be
solicited by directors, officers and employees of the Company without additional
compensation.
 
     If the enclosed proxy is executed and returned, the shares represented
thereby will be voted in accordance with any specifications made therein by the
shareholder. In the absence of any such specifications, the proxies will be
voted (a) to elect the seven nominees named under "Election of Directors" above;
and (b) FOR the proposal to approve the Company's 1994 Executive Bonus Plan as
it applies to certain executive officers.
 
     The presence of any shareholder at the meeting will not operate to revoke
his proxy. A proxy may be revoked at any time insofar as it has not been
exercised by giving written notice to the Company or in open meeting.
 
                                       22

<PAGE>   25
 
     If any other matters shall properly come before the meeting, the persons
named in the proxy, or their substitutes, will vote thereon in accordance with
their judgment. The Board of Directors does not know at this time of any other
matters which will be presented for action at the meeting.
 
                             AVAILABLE INFORMATION
 
     THE COMPANY WILL FURNISH, WITHOUT CHARGE, TO EACH PERSON TO WHOM A PROXY
STATEMENT IS DELIVERED, UPON ORAL OR WRITTEN REQUEST, A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR 1993 (OTHER THAN CERTAIN EXHIBITS). REQUESTS FOR
SUCH DOCUMENTS SHOULD BE SUBMITTED IN WRITING TO CHARLES B. CHOKEL, CHIEF
FINANCIAL OFFICER, THE PROGRESSIVE CORPORATION, 6300 WILSON MILLS ROAD, MAYFIELD
VILLAGE, OH 44143 OR BY TELEPHONE AT (216) 446-7260.
 
                                        By Order of the Board of Directors.
 
                                                   DAVID M. SCHNEIDER, Secretary
 
March 18, 1994
 
                                       23

<PAGE>   26
 
                               THE PROGRESSIVE CORPORATION
 
            PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
                                 MEETING OF SHAREHOLDERS
 
              The undersigned hereby appoints Charles B. Chokel, David M.
          Schneider and Dane A. Shrallow, and each of them, with full power of
          substitution, as proxies for the undersigned to attend the Annual
          Meeting of Shareholders of The Progressive Corporation, to be held at
          6671 Beta Drive, Mayfield Village, Ohio, at 10:00 a.m., Cleveland
          time, on April 22, 1994, and thereat, and at any adjournment thereof,
          to vote and act with respect to all Common Shares of the Company which
          the undersigned would be entitled to vote, with all power the
          undersigned would possess if present in person, as follows:
 
          1. / / WITH or / / WITHOUT authority to vote (except as marked to the
                 contrary below) for the election as directors of all seven
                 nominees listed below for a term of one year.
 
           Milton N. Allen, B. Charles Ames, Stephen R. Hardis, Peter B. Lewis,
                                   Norman S. Matthews,
                         Donald B. Shackelford and Paul B. Sigler
 
             (INSTRUCTION: To withhold authority to vote for any individual
                           nominee, print that nominee's name in the space
                           provided below.)
 
          ----------------------------------------------------------------------
 
          2. Proposal to approve the Company's 1994 Executive Bonus Plan as it
             applies to certain executive officers.
 
                                           / / FOR    / / AGAINST    / / ABSTAIN
 
          3. In their discretion, to vote upon such other business as may
          properly come before the meeting.
 
                      (Continued, and to be dated and signed, on the other side)
 
                            (Continued from the other side)
 
              THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED BY
          THE SHAREHOLDER. IF NO SPECIFICATIONS ARE MADE, THIS PROXY WILL BE
          VOTED TO ELECT THE NOMINEES IDENTIFIED IN ITEM 1 ABOVE AND TO APPROVE
          THE PROPOSAL DESCRIBED IN ITEM 2 ABOVE.
 
              Receipt of Notice of Annual Meeting of Shareholders and the
          related Proxy Statement dated March 18, 1994, is hereby acknowledged.
                                              Date:                       , 1994
 
                                              ----------------------------------
 
                                              ----------------------------------
 
                                              ----------------------------------
 
                                                 Signature of Shareholder(s)
 
                                              PLEASE SIGN AS YOUR NAME OR NAMES
                                              APPEAR HEREON. IF SHARES ARE HELD
                                              JOINTLY, ALL HOLDERS MUST SIGN.
                                              WHEN SIGNING AS ATTORNEY,
                                              EXECUTOR, ADMINISTRATOR, TRUSTEE
                                              OR GUARDIAN, PLEASE GIVE YOUR FULL
                                              TITLE. IF A CORPORATION, PLEASE
                                              SIGN IN FULL CORPORATE NAME BY
                                              PRESIDENT OR OTHER AUTHORIZED
                                              OFFICER. IF A PARTNERSHIP, PLEASE
                                              SIGN IN PARTNERSHIP NAME BY
                                              AUTHORIZED PERSON.
 
                                   Proxy Card





<PAGE>   1





                          THE PROGRESSIVE CORPORATION
                           1994 EXECUTIVE BONUS PLAN
                           (SENIOR PARTICIPANTS ONLY)
                           --------------------------

1.  The Progressive Corporation and its subsidiaries ("Progressive") have
    designed an executive compensation program consisting of three components:
    salary, annual bonus and equity-based incentives in the form of
    non-qualified stock options.  These components have been structured to
    reflect the market for executive compensation and to promote both the
    achievement of corporate goals and performance that is in the long-term
    interests of shareholders.  The annual bonus component is performance-based
    and focuses on current results.

2.  The 1994 Executive Bonus Plan (the "Plan") shall be administered by or
    under the direction of the Executive Compensation Committee (the
    "Committee") of the Board of Directors.  Executive officers of Progressive
    may be selected by the Committee to participate in the Plan for one or more
    Plan years.  Plan years shall coincide with Progressive's fiscal years.

3.  This document sets forth the terms and provisions of the Plan which are
    applicable to Charles B. Chokel, Peter B. Lewis, Bruce W. Marlow and
    Michael C. Murr (the "senior participants").  Such terms and provisions, as
    they apply to the senior participants,
 shall be deemed to constitute a
    separate plan, which provides for "performance-based compensation" as
    contemplated under Section 162(m) of the Internal Revenue Code, as amended
    (the "Code"), and the rules and regulations promulgated thereunder, and
    shall be subject to approval of Progressive's shareholders in accordance
    with the requirements of Section 162(m) of the Code.

4.  Subject to the following sentence, the amount of the annual bonus earned by
    any participant under the Plan ("Annual Bonus") will be determined by
    application of the following formula:

           Annual Bonus = Paid Salary x Target Percentage x Performance Factor

    The Annual Bonus payable to any participant with respect to any Plan year
    may not exceed $2,000,000.00.

5.  The salary of each Plan participant shall be as established by the
    Committee prior to commencement of the Plan year (or prior to April 1, 1994
    with respect to the


<PAGE>   2
    1994 Plan year), and will be determined through market analysis based on 
    data reported in published national compensation surveys.


<TABLE>
<CAPTION>
6.  The Target Percentages for the senior participants in the Plan are as follows:

    Senior
    Participant                   Position                 Target Percentage
    -----------                   --------                 -----------------
    <S>                      <C>                                   <C>
    Charles B. Chokel        Chief Financial Officer                80%
    Peter B. Lewis           Chief Executive Officer               100%
    Bruce W. Marlow          Chief Operating Officer                80%
    Michael C. Murr          Chief Investment Officer              167%
<FN>
    Target Percentages may be changed from year to year by the Committee.
</TABLE>


7.  The Performance Factor
    ----------------------
    A.    General
          -------
          The Performance Factor shall be determined by the performance
          results achieved with respect to one or more of the following
          components:  Core Business Gainsharing, Return on Average
          Equity ("ROE") and Investment Performance, as described below
          (the "Bonus Components").  An appropriate combination of Bonus
          Components will be designated for each participant, and the
          designated Bonus Components will be weighted, based on such
          participant's assigned responsibilities.


<TABLE>
<CAPTION>
          The combination of Bonus Components designated for each of the senior 
          participants, and the relative weighting of those Components, are as 
          follows:

          <S>                  <C>                   <C>              <C>         
        +---------------+---------------------+-----------------+-----------------+
        | Senior        |      Core Business  |     ROE         |     Investment  |
        | Participant   |      Gainsharing    |     Component   |     Performance |
        |               |      Component      |                 |     Component   |
        +---------------+---------------------+-----------------+-----------------+
        | Chokel        |      60%            |      30%        |     10%         |
        +---------------+---------------------+-----------------+-----------------+
        | Lewis         |      50%            |      30%        |     20%         |
        +---------------+---------------------+-----------------+-----------------+
        | Marlow        |      80%            |      20%        |     0%          |
        +---------------+---------------------+-----------------+-----------------+
        | Murr          |      0%             |      50%        |     50%         |
        +---------------+---------------------+-----------------+-----------------+
</TABLE>



                                             2   



<PAGE>   3
                 The relative weighting of the Bonus Components may vary among
                 Plan participants and may be changed from year to year by the
                 Committee.

                 Actual performance results achieved for any Plan year, as used
                 to calculate the performance score achieved for each of the
                 applicable Bonus Components, shall be as certified by the
                 Committee prior to payment of the Annual Bonus.

                 For purposes of computing the amount of the Annual Bonus, the
                 performance score achieved for each of the designated Bonus
                 Components will be multiplied by the applicable weighting
                 factor to produce a Weighted Component Score.  The sum of the
                 Weighted Component Scores equals the Performance Factor.  The
                 Performance Factor can vary from 0 to 2.0, based on actual
                 performance versus the pre-established objectives.

         B.      Core Business Gainsharing Component
                 -----------------------------------
                 The Core Business Gainsharing Component consists of the
                 following factors:

                 (i)      Profitability and Growth Factor
                          -------------------------------
                          The Profitability and Growth Factor measures overall
                          operating performance of Progressive's core personal
                          and commercial automobile insurance business ("Core
                          Business") for the Plan year in respect of which an
                          Annual Bonus is to be paid.  For purposes of
                          computing a score for this Factor, results will be
                          measured by the Gainsharing Matrix, as established by
                          the Committee for the Plan year, which assigns a
                          performance score to various combinations of
                          profitability and growth outcomes.  For this Factor,
                          profitability is measured by the GAAP combined ratio
                          and growth is measured by the year-to-year change in
                          market share.  Change in market share is measured in
                          terms of net written premium, based on industry data
                          (which may be estimated), as reported by A.M. Best
                          Company, Inc. in BEST WEEK, or any successor
                          publication, upon conclusion of the Plan year for
                          which the Annual Bonus is to be paid.  The
                          Profitability and Growth Factor is weighted 70% in
                          computing the Core Business Gainsharing Score.





                                                           3

<PAGE>   4
                 (ii)     Cost Structure Improvement Factor
                          ---------------------------------
                          The Cost Structure Improvement Factor measures
                          success in achieving cost structure improvement for
                          the Core Business.  Results are reflected in a Cost
                          Structure Improvement Score.  For purposes of
                          computing the Cost Structure Improvement Score, cost
                          structure improvement is measured by comparing the
                          sum of the GAAP Underwriting Expense Ratio
                          ("Underwriting Expense Ratio") and Loss Adjustment
                          Expense Ratio ("LAE Ratio") achieved in the Core
                          Business for the Plan year (collectively, "Actual
                          Expense Ratio") against the defined expense
                          objectives for that year, as established by the
                          Committee ("Target Expense Ratio").  For 1994 and
                          thereafter until otherwise directed by the Committee,
                          the Target Expense Ratio shall be 34, based on a
                          target LAE Ratio of 10 and a target Underwriting
                          Expense Ratio of 24.  The Cost Structure Improvement
                          Factor is weighted 30% in computing the Core Business
                          Gainsharing Score.

                          The Cost Structure Improvement Score will be computed
                          in accordance with the following formula:

             Cost Structure        [Target Expense Ratio-Actual Expense Ratio]
             Improvement     =  1+ -------------------------------------------
             Score                                    4
                                         

                 Expense targets and the relative weighting of the above
                 Factors may be changed from year to year by the Committee.

         C.      Return on Average Equity Component
                 ----------------------------------
                 This Component is based on Progressive's Return on Average
                 Equity ("ROE") for the Plan year.  The ROE will be calculated
                 for each month of the Plan year and such monthly results will
                 be averaged to determine the ROE for the Plan year.  For
                 purposes of this Plan, ROE shall be calculated as follows:

                 ROE =     net income - Preferred Share dividends      
                        -------------------------------------------
                            average common shareholders' equity





                                                                  4

<PAGE>   5

<TABLE>
<CAPTION>
                 In determining the ROE Performance Score, actual performance will be compared to a scale which excludes the 
                 effect of inflation, in accordance with the following scoring table:

                                             <S>                           <C>             
                                           +----------------------------+------------------+
                                           | ROE (excluding effect of   |  ROE Performance |
                                           | inflation, as reflected in |  Score           |
                                           | the CPI)                   |                  |
                                           +----------------------------+------------------+
                                           | 11% or lower               |  0.0             |
                                           +----------------------------+------------------+
                                           | 12%                        |  0.3             |
                                           +----------------------------+------------------+
                                           | 13%                        |  0.5             |
                                           +----------------------------+------------------+
                                           | 14%                        |  0.7             |
                                           +----------------------------+------------------+
                                           | 15%                        |  1.0             |
                                           +----------------------------+------------------+
                                           | 16%                        |  1.1             |
                                           +----------------------------+------------------+
                                           | 17%                        |  1.2             |
                                           +----------------------------+------------------+
                                           | 18%                        |  1.3             |
                                           +----------------------------+------------------+
                                           | 19%                        |  1.4             |
                                           +----------------------------+------------------+
                                           | 20%                        |  1.5             |
                                           +----------------------------+------------------+
                                           | 21%                        |  1.6             |
                                           +----------------------------+------------------+
                                           | 22%                        |  1.7             |
                                           +----------------------------+------------------+
                                           | 23%                        |  1.8             |
                                           +----------------------------+------------------+
                                           | 24%                        |  1.9             |
                                           +----------------------------+------------------+
                                           | 25% or higher              |  2.0             |
                                           +----------------------------+------------------+

</TABLE>


                 To achieve a given ROE Performance Score for any Plan year,
                 Progressive's ROE for that year must equal or exceed the
                 required ROE level set forth in the above scoring table,
                 without rounding, and ROE Performance Scores will not be
                 derived from or subject to an interpolative or similar
                 process.

                 For purposes of this Plan, CPI shall mean the Consumer Price
                 Index for All Urban Consumers (CPI-U) for the U.S. City
                 Average for All Items (1982-1984 equals 100) or such other
                 index as the Committee may designate prior to the applicable
                 Plan year.





                                                                    5

<PAGE>   6
         D.      Investment Performance Component
                 --------------------------------
                 The Investment Performance Component compares investment
                 performance against targets ("Benchmarks") established for the
                 individual segments of Progressive's investment portfolio.
                 Investments are marked to market in order to calculate total
                 return, which is then compared against the designated
                 Benchmarks to produce a Performance Score for each segment of
                 the portfolio.  The Performance Scores for the several
                 segments are weighted, based on the actual amounts invested in
                 each segment (valued monthly), and the weighted Performance
                 Scores for the several segments are then combined to produce
                 the Investment Performance Score.  Investment expense is not
                 included in determining investment performance vs. benchmark.


<TABLE>
<CAPTION>
                 The Portfolio Segments and Benchmark measures are as follows:
                 <S>                                    <C>

               +-------------------------------------+--------------------------------------------+
               | Portfolio Segment                   |   Investment Benchmark                     |
               +-------------------------------------+--------------------------------------------+
               | Equities                            |   S&P 500 including dividends              |
               +-------------------------------------+--------------------------------------------+
               | High Yield Investments              |   70% of the average of Merrill Lynch      |
               |                                     |   High Yield Index and Merrill Lynch       |
               |                                     |   Bankruptcy Index                         |
               +-------------------------------------+--------------------------------------------+
               | Short Term Fixed Income             |   3 Year Treasury Securities + 75 basis    |
               |                                     |   points, tax equivalent basis             |
               +-------------------------------------+--------------------------------------------+
</TABLE>



<TABLE>
<CAPTION>
                 The scoring table for comparing Investment Performance against the 
                 designated Benchmarks is as follows:

                             <S>                       <C>
                           +-----------------------+----------------+
                           | Investment            |   Investment   |
                           | Performance           |   Performance  |
                           | Versus                |   Score        |
                           | Benchmark             |                |
                           | (weighted)            |                |
                           +-----------------------+----------------+
                           | below 90%             |   0.00         |
                           +-----------------------+----------------+
                           | 90 - 94.99%           |    0.75        |
                           +-----------------------+----------------+
                           | 95 - 99.99%           |   0.90         |
                           +-----------------------+----------------+
                           | 100% and above        |   1.00         |
                           +-----------------------+----------------+
</TABLE>






                                                                    6

<PAGE>   7
         To achieve a given Investment Performance Score for any Plan year,
         Investment Performance results must equal or exceed the required
         performance level indicated in the above scoring table, without
         rounding, and Investment Performance Scores will not be derived from
         or subject to an interpolative or similar process.

8.       The Annual Bonus for any Plan year shall be paid to participants in
         two installments. The first installment, in an amount equal to 90% of
         the Annual Bonus, determined in accordance with the formula set forth
         in Paragraph 4 above, will be paid as soon as practicable after the
         Committee has certified performance results for the Plan year, but no
         later than March 31 of the immediately following year.  The second
         installment, in an amount equal to 10% of the Annual Bonus, will be
         paid to participants on the September 30 immediately following the end
         of the Plan year for which such Annual Bonus is to be paid.  The
         provisions of this Paragraph shall be subject to Paragraph 9 hereof.

9.       Unless otherwise determined by the Committee, in order to be entitled
         to receive any installment of the Annual Bonus for any Plan year, the
         participant must be employed by Progressive on the date designated for
         payment thereof.  Annual Bonus payments made to participants will be
         net of any federal, state and local taxes required to be withheld.

10.      The right to any of the Annual Bonuses hereunder shall not be
         transferred, assigned or encumbered by any participant.  Nothing
         herein shall prevent any participant's interest hereunder from being
         subject to involuntary attachment, levy or other legal process.

11.      The Plan shall be administered by or under the direction of the
         Committee.  The Committee shall have the authority to adopt, alter and
         repeal such rules, guidelines, procedures and practices governing the
         Plan as it shall, from time to time, in its sole discretion deem
         advisable.

         The Committee shall have full authority to determine the manner in
         which the Plan will operate, to interpret the provisions of the Plan
         and to make all determinations thereunder.  All such interpretations
         and determinations shall be final and binding on Progressive, all Plan
         participants and all other parties.  No such interpretation or
         determination shall be relied on as a precedent for any similar action
         or decision.

         The selection of Bonus Components and Performance Factors shall be
         made, and the Plan shall be administered, by the Committee in
         accordance with the requirements of Section 162(m) of the Code.





                                                                      7

<PAGE>   8
12.      The Plan may be terminated, amended or revised, in whole or in part,
         at any time and from time to time by the Committee, in its sole
         discretion; provided that the Committee may not increase the amount of
         compensation payable hereunder to any participant above the amount
         that would otherwise be payable upon attainment of the applicable
         performance goals, or accelerate the payment of any portion of the
         Annual Bonus due under the Plan without discounting the amount of such
         payment in accordance with Section 162(m) of the Code, and further
         provided that any amendment or revision of the Plan required to be
         approved by shareholders pursuant to Section 162(m) of the Code shall
         not be effective until approved by Progressive's shareholders in
         accordance with the requirements of Section 162(m).

13.      The Plan will be unfunded and all payments due under the Plan shall be
         made from Progressive's general assets.

14.      Nothing in the Plan shall be construed as conferring upon any person
         the right to remain a participant in the Plan or to remain employed by
         Progressive, nor shall the Plan limit Progressive's right to
         discipline or discharge any of its officers or employees or change
         their job duties or compensation.

15.      Progressive shall have the unrestricted right to set off against or
         recover out of any bonuses or other sums owed to any participant under
         the Plan any amounts owed by such participant to Progressive.

16.      This Plan supersedes all prior plans, agreements, understandings and
         arrangements regarding bonuses or other cash incentive compensation
         payable or due to any participant from Progressive.  Without limiting
         the generality of the foregoing, this Plan supersedes and replaces The
         Progressive Corporation Management Bonus Plan, as heretofore in effect
         (the "Prior Plan"), which is and shall be deemed to be terminated as
         of December 31, 1993 (the "Termination Date"); provided, that any
         bonuses or other sums earned under the Prior Plan prior to the
         Termination Date shall be unaffected by such termination and shall be
         paid to the appropriate participants when and as provided thereunder.

17.      This Plan is adopted, and is to be effective, as of January 1, 1994,
         subject to shareholder approval.  If approved by shareholders, this
         Plan shall be effective for 1994 and for each year thereafter unless
         and until terminated by the Committee.

18.      This Plan shall be interpreted and construed in accordance with the
         laws of the State of Ohio.





                                                                 8



<PAGE>   1





     Q - DOES THE PROGRESSIVE CORPORATION HAVE ANY GOOD NEWS TO REPORT?





                                         A - WE'RE GLAD YOU ASKED THAT QUESTION.


     1993 PERFORMANCE HIGHLIGHTS 4   VISION, CORE VALUES AND OBJECTIVES 
     6 LETTER TO SHAREHOLDERS 13 FINANCIAL REVIEW 32 




<PAGE>   2





                Photograph: "Wheels Triptych," Zeke Berman, 1994

<PAGE>   3
                                                                           2 - 3


<TABLE>
FINANCIAL                             HIGHLIGHTS 
<CAPTION>


(millions--except per share amounts)

                                                                                             Average Annual Compounded
                                                                                            Rate of Increase (Decrease)

FOR THE YEAR                                              1993          1992      % CHANGE     1989-1993     1984-1993
<S>                                                  <C>           <C>                  <C>       <C>          <C>
 Direct premiums written  . . . . . . . . . . .      $ 1,966.4     $ 1,636.8            20             8            23
 Net premiums written   . . . . . . . . . . . .        1,819.2       1,451.2            25             7            22
 Net premiums earned  . . . . . . . . . . . . .        1,668.7       1,426.1            17             7            21
 Total revenues   . . . . . . . . . . . . . . .        1,954.8       1,738.9            12             8            22
 Income before cumulative effect of
   accounting change  . . . . . . . . . . . . .          267.3         139.6            91            20            28
 Net income   . . . . . . . . . . . . . . . . .          267.3         153.8            74            20            26
 Per share:
  Income before cumulative effect of
     accounting change  . . . . . . . . . . . .           3.58          1.85            94            24            28
  Net income    . . . . . . . . . . . . . . . .           3.58          2.05            75            24            26
 Underwriting margin  . . . . . . . . . . . . .           10.7%          3.5%

AT YEAR-END

 Consolidated shareholders' equity  . . . . . .      $   997.9     $   629.0            59            19            29
 Common Shares outstanding  . . . . . . . . . .           72.1          67.1             7           (2)            --
 Book Value per Common Share  . . . . . . . . .      $   12.62     $    7.94            59            20            27
 Return on average shareholders' equity   . . .           36.0%         34.7%

STOCK PRICE APPRECIATION 1                              1-YEAR                                    5-YEAR       10-YEAR

 Progressive  . . . . . . . . . . . . . . . . .           39.8%                                     40.7%         28.2%
 S&P 500  . . . . . . . . . . . . . . . . . . .           10.1%                                     14.6%         14.9%

<FN>
1 Assumes dividend reinvestment.
</TABLE>


<PAGE>   4
1993                       PERFORMANCE                         HIGHLIGHTS



Q - HOW DID PROGRESSIVE PERFORM AGAINST THE PROPERTY-CASUALTY INDUSTRY?


              A - GREAT! OUR 10.7 PERCENT COMPANYWIDE UNDERWRITING PROFIT MARGIN
    WAS ALMOST 20 POINTS BETTER THAN THE INDUSTRY, THE 5TH TIME IN 15 YEARS THAT
                                WE EXCEEDED THE INDUSTRY BY MORE THAN 15 POINTS.




Q - HOW DID THE CORE BUSINESS DO?



                A - THE CORE BUSINESS CONTINUES TO GROW PROFITABLY, DESPITE MORE
      COMPANIES TRYING TO WRITE IN THE NONSTANDARD AUTO NICHE. IN 1993, THE CORE
             BUSINESS GREW 25 PERCENT WITH AN UNDERWRITING PROFIT OF 10 PERCENT.



ABOUT THE ART  Five years ago, Progressive set out on the path of change.
 Knowing we have to respond to consumers' dissatisfaction with auto insurance,
 we are learning how to lower consumers' cost and improve their experience
 sufficiently to turn their anger into delight. We have redefined our strategy,
 driven by our strong belief that lower prices, more information, more options
 and immediate service is what is needed to delight customers.
We commissioned artist Zeke Berman to respond visually to this strategy. Berman
 constructed a series of images representing his unique interpretation of the
 "car." His beautifully crafted diagrammatic tableaux are assembled into forms
 that balance whimsy, illusion and invention. Berman's photographs will become
 part of Progressive's growing collection of contemporary art.
Intrigued by the diagrammatic character of Berman's work and the concept of
 redefinition, our annual report designers looked up the word "progressive" in
 the dictionary. That inquiry inspired the use of the Merriam-Webster
 illustrations and many of the graphic elements that appear throughout this
 annual report.

<PAGE>   5
                                                                           4 - 5



Q - IS PROGRESSIVE IN THE STANDARD/PREFERRED AUTO MARKET?




                        A - YES, WE CONTINUE TESTING OUR STANDARD AND PREFERRED
    PRODUCTS, AND, IN 1993, THESE PRODUCTS REPRESENTED 4.5 PERCENT OF OUR TOTAL 
    PRIVATE PASSENGER AUTO PREMIUMS. WE ARE THE NINTH LARGEST PRIVATE PASSENGER
                                                   AUTO INSURER IN THE COUNTRY.



Q - HOW DOES PROGRESSIVE DETERMINE HOW MUCH CAPITAL IT NEEDS?



               A - WHEN WE ANTICIPATE SLOW GROWTH, WE CONSIDER REDUCING CAPITAL.
   WHEN WE EXPECT RAPID GROWTH, WE INCREASE CAPITAL. OVER THE LAST 20 YEARS, OUR
  GROWTH RATE HAS RANGED FROM SMALL DECLINES TO NEARLY 70 PERCENT GROWTH AND OUR
           RATIO OF FUNDED DEBT TO CAPITAL RANGED FROM 61 PERCENT TO 24 PERCENT.


ABOUT PROGRESSIVE The Progressive insurance organization began business in
 1937. Progressive Casualty Insurance Company was founded in 1956. The
 Progressive Corporation, an insurance holding company formed in 1965, owns 52
 operating subsidiaries and has one mutual insurance company affiliate. The
 companies provide personal automobile insurance and other specialty
 property-casualty insurance and related services sold primarily through
 independent insurance agents in the United States and Canada. The 1993
 estimated industry premiums, which include personal auto insurance in the U.S.
 and Ontario, Canada, as well as insurance for commercial vehicles, were $115
 billion and Progressive's share was 1.5 percent.

<PAGE>   6
VISION,          CORE             VALUES           AND              OBJECTIVES



Communicating a clear picture of who we are, what we strive to achieve
 (Vision), what guides our behavior (Core Values), how we measure our
 performance (Objectives), and how we will achieve them (Strategies) permits
 all people associated with Progressive to understand and help us achieve our
 vision and objectives.
VISION  We seek to be an excellent, innovative, growing and enduring business by
 reducing the human trauma and economic costs of auto accidents in
 cost-effective and profitable ways that delight customers. We seek to earn a
 superior return on equity and to provide a positive environment to attract
 quality people and achieve ambitious growth plans.
CORE VALUES  Progressive's Core Values are pragmatic statements of what works
 best for us in the real world. Core Values govern our decisions and behavior.
 We want them understood and embraced by all Progressive people. Core Values are
 standards by which we measure ourselves. Growth and change provide new
 perspective and require regular refinement of Core Values.
INTEGRITY.  We revere honesty. We adhere to high ethical standards, report
 completely, 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 be clear and open about 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, shareholders and people. "Quality" is
 Progressive's process for teaching and encouraging our people to improve
 performance and reduce the costs of what they do for customers. We base reward
 on results and promotion on ability.
PROFIT.  The free-enterprise system rewards most those who most enhance the
 health and happiness of their customers, communities and people. Profit
 motivates Progressive to invest in new ways to do this. Enhancing people's
 health and happiness is the ultimate goal, and healthy, happy people do it
 best.





Q - IF I SPENT $1,800 TO BUY 100 SHARES OF PROGRESSIVE STOCK IN THE INITIAL 
PUBLIC OFFERING IN 1971, WHAT WOULD IT BE WORTH TODAY?

<PAGE>   7
                                                                           6 - 7



         A - WHAT A GREAT INVESTMENT. AT THE END OF 1993, AFTER ALL OF THE STOCK
       SPLITS, YOU WOULD HAVE 7,689 SHARES WORTH OVER $311,000 AND RECEIVED OVER
                            $9,000 IN DIVIDENDS -- A 25.5 PERCENT ANNUAL RETURN.




 FINANCIAL OBJECTIVES

Consistent achievement of superior results requires that our people understand
 Progressive's objectives and their specific role, and that their personal
 objectives dovetail with Progressive's. Our objectives are ambitious yet
 realistic. We are committed to achieving financial objectives over successive
 five-year periods. Experience always clarifies objectives and illuminates
 better strategies. We constantly evolve as we monitor the execution of our
 strategies and progress toward achieving our objectives.
Most Progressive businesses are managed by a product manager, who is
 responsible to a Division President. Each business has different capital
 requirements, risks, growth rate, potential, competition, regulatory issues,
 cash flows and investment income.  We consider these differences when reaching
 agreement with the product manager and Division President on their volume and
 profit plans.
RETURN ON SHAREHOLDERS' EQUITY  Our most important financial goal is to achieve
 an after-tax return on shareholders' equity that is at least 15 percentage
 points greater than the rate of inflation (measured by the GDP deflator which
 was 2.8 percent in 1993, and averaged 3.9 percent over the past five years and
 ten years). Return on equity was 36.0 percent in 1993, averaged 24.8 percent
 over the past five years and 25.3 percent over the past ten years.
PROFITABILITY  Progressive is driven by the goal of producing a four percent
 underwriting profit. The Core businesses had an underwriting profit of 10.5
 percent in 1993, an underwriting profit of 5.8 percent for the past five years
 and 6.4 percent for the past ten years. Estimated industry results for the
 personal auto insurance market for the same periods were underwriting losses
 of 2.0 percent, 5.1 percent and 6.4 percent. Profitability in our Diversified
 businesses, which include service operations, is measured on a return on
 revenue basis. We seek a minimum of a ten percent return on revenue in these
 businesses. For 1993, the return on revenue was 33.7 percent.
GROWTH  We seek increases in volume that are at least 15 percentage points
 greater than the rate of inflation. For the Core business, volume is measured
 by net premiums written, which increased 25.5 percent in 1993, 13.3 percent
 compounded annually over the past five years and 22.5 percent over the past
 ten years. Net premiums written in the personal auto insurance market for the
 same periods grew 5.2 percent, 6.0 percent and 8.7 percent. For Diversified
 businesses, volume is measured by operating revenues (net premiums earned plus
 service revenue). Operating revenues decreased 17.1 percent in 1993, decreased
 14.7 percent compounded annually over the past five years and increased 22.1
 percent over the past ten years.
ACHIEVEMENTS  We are convinced that the best way to maximize shareholder value
 is to achieve these financial objectives consistently. A shareholder who
 purchased 100 shares of Progressive for $1,800 at our first public stock
 offering on April 15, 1971, owned 7,689 shares on December 31, 1993, with a
 market value of $311,000, for a 25.5 percent annual return, compared to the
 seven percent return achieved by investors in the Standard & Poor's 500 during
 the same period. In addition, the shareholder received dividends, which were
 $1,500 in 1993.
In the ten years since December 31, 1983, Progressive shareholders have
 realized compound returns of 28.2 percent, compared to 14.9 percent for the
 S&P 500. In the five years since December 31, 1988, Progressive shareholders'
 returns were 40.7 percent, compared to 14.6 percent for the S&P 500. In 1993,
 the returns were 39.8 percent on Progressive shares and 10.1 percent on the
 S&P 500.
The repurchase of Progressive stock is another way the Company increases
 shareholder value. Over the years, when we have adequate capital and
 Progressive's stock is attractively priced, we have repurchased our shares.
 Since 1971, we spent $492.2 million to repurchase shares, at an average cost
 of $6.15 per share.

<PAGE>   8
                                                                           8 - 9




<TABLE>
<CAPTION>
RETURN ON SHAREHOLDERS' EQUITY                                                  1993       LAST 5 YEARS      LAST 10 YEARS
<S>                                                                            <C>                <C>                 <C>
 Goal   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       17.8%              18.9%              18.9%
 Companywide  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       36.0               24.8               25.3


UNDERWRITING PROFIT
 Goal   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        4.0                4.0                4.0
 Core Business  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       10.5                5.8                6.4
 Industry-Personal Auto Insurance Market  . . . . . . . . . . . . . . . .       (2.0)              (5.1)              (6.4)


GROWTH (ANNUALIZED)
 Goal   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       17.8               18.9               18.9
 Net Premiums Written
   Core Business  . . . . . . . . . . . . . . . . . . . . . . . . . . . .       25.5               13.3               22.5
   Industry-Personal Auto Insurance Market  . . . . . . . . . . . . . . .        5.2                6.0                8.7
 Operating Revenues
   Diversified Businesses   . . . . . . . . . . . . . . . . . . . . . . .      (17.1)             (14.7)              22.1
</TABLE>






Q - WHAT IS PROGRESSIVE'S MOST IMPORTANT FINANCIAL OBJECTIVE?

<PAGE>   9





                 Photograph: "Three Wheels," Zeke Berman, 1994

<PAGE>   10





                 Photograph: "Tires Diptych," Zeke Berman, 1993

<PAGE>   11





                 Photograph: "Tires Diptych," Zeke Berman, 1993

<PAGE>   12





                Photograph: "Hubcap Diptych," Zeke Berman, 1993

<PAGE>   13
LETTER             TO                 SHAREHOLDERS                       12 - 13

 RESULTS
I am proud to describe Progressive's best ever financial results. We had record
 annual earnings and insurance premium volume, and achieved the 22nd annual
 underwriting profit since our founding in 1965. Return on shareholders' equity
 was 36.0 percent, compared to 34.7 percent in 1992. Net income increased 74
 percent to $267.3 million, or $3.58 per share, compared to $153.8 million, or
 $2.05 per share, in 1992. Operating income increased 52 percent to $197.3
 million, or $2.61 per share, compared to $129.8 million, or $1.72 per share,
 in 1992. Net premiums written increased 25 percent to $1,819.2 million,
 compared to $1,451.2 million in 1992.  We achieved a 10.7 percent underwriting
 profit, compared to 3.5 percent in 1992. We reduced underwriting and loss
 adjustment expenses by almost six more percentage points in 1993, after a nine
 percentage point reduction in 1992.
Ninety-three percent of Progressive's net premiums written come from 14 Core
 divisions, which write insurance for private passenger autos and small
 commercial and recreational vehicles. Core business net premiums written grew
 25 percent to $1,700 million, compared to $1,355 million in 1992. The Core
 business underwriting profit margin was ten percent, compared to eight percent
 in 1992.
Three smaller Diversified divisions, Financial Services, Risk Management
 Services and Motor Carrier, provide combinations of service and indemnity to
 businesses. Diversified divisions' net premiums written and underwriting
 profit margins were $118 million and 14 percent, respectively, compared to
 $107 million and minus 33 percent in 1992. The Diversified divisions produced
 service revenues and pretax profits of $43.7 million and $6.8 million,
 respectively, compared to $53.3 million service revenue and a $4.3 million
 pretax loss in 1992.





   A - THE MOST IMPORTANT OBJECTIVE IS RETURN ON SHAREHOLDERS' EQUITY, WHICH WAS
  36.0 PERCENT IN 1993. HOWEVER, WE ARE COMMITTED TO ACHIEVING ALL OUR FINANCIAL
   OBJECTIVES (ROE, PROFITABILITY AND GROWTH) OVER SUCCESSIVE FIVE-YEAR PERIODS.

<PAGE>   14
 THE STATE OF OUR BUSINESSES

 CORE BUSINESS
We are in the midst of a multi-year strategy to change and greatly enhance the
 Core business. We began as almost entirely a provider of niche products
 through independent insurance agents. Our goal is to become a low-cost
 provider of a full line of auto insurance and related services, distributed
 through many different channels. This full product line will be marketed under
 a distinctive brand based on our commitment to delight customers. The
 transition strategy is to build on the excellent people, customer-focused
 divisionalized product manager organization, superb claim service, broad
 independent agent distribution and creative rate segmentation that are the
 basis for our extraordinary results to date. In 1993, we made substantial
 progress by reducing expenses, improving control of loss costs, expanding
 product offerings, testing new distribution methods and developing the
 Progressive brand experience.
EXPENSES  The Core business underwriting expense ratio was reduced to 25.9
 percent from 28.4 percent in 1992, compared to the personal auto insurance
 industry expense ratio of 22.7 percent. Our achievement in lowering expenses
 was in line with our goal of having a 20 percent expense ratio by the year
 2000. The 1993 reductions came from process improvements developed by
 empowered work teams and from technology like our ProRater (registered trade-
 mark) Plus program where agents quote and submit applications electronically.
LOSS COSTS  Payments for policyholders' losses and the expenses associated with
 handling them were 63.7 percent of 1993 earned premium. Immediate Response
 (Registered trademark) claims service begins with our customers' understanding
 that we are available around-the-clock, 24 hours a day, 365 days a year, and
 WANT THEM TO CALL 1-800-274-4499 immediately--from the scene of their accident
 or as soon as possible thereafter. During 1993, we improved on key claim
 service reporting measurements, including median hours between claims
 occurring and being reported, and the number of claims reported within four
 hours of occurrence.
Once a claim is reported, we try to communicate with all appropriate parties
 within hours to obtain necessary information, determine damages, assess fault
 and make a fair settlement offer. This often involves claim reps meeting 
 personally with our insured or claimant within hours of the accident. 
 The percentage of third-party property damage and first-party collision 
 claims closed within seven days of the accident increased from 51 percent in 
 1992 to 56 percent in 1993.
Delivering this claim service cost 9.1 percent of 1993 earned premium, down
 from 10.7 percent in 1992 and 14.2 percent in 1991. We plan for ten percent
 loss adjustment expense long-term because we believe it achieves the optimum
 balance between the cost of adjusting and the costs of settlements, because it
 takes into account that loss ratios will increase and because we will write
 more policies with high liability limits.
PRODUCT OFFERINGS  Our traditional nonstandard auto product provides coverage
 for people cancelled and rejected by other insurers.  However, more insurers
 are surcharging and retaining the risks they formerly rejected, thereby
 shrinking the market available to Progressive. Also, there is more low-cost
 competition for nonstandard drivers. In response, we now, or soon will, offer
 consumers three different price levels, each with a different commission that
 produces the same amount net to Progressive. This way agents can choose the
 commission rate that matches their costs of servicing particular customers,
 promoting competition and consumer choice.
Progressive divides the $94 billion United States personal auto insurance
 market, which includes recreational vehicles and pick-up trucks, into
 "nonstandard," "standard" and "preferred." Nonstandard private passenger auto
 insurance premiums, including all residual market mechanisms, are $18 billion,
 19 percent of the total. The other 81 percent is standard and preferred.  In
 1993, we continued testing standard and preferred products by writing $64 
 million, 4.5 percent of our total private passenger auto premiums.

Q - HAS PROGRESSIVE'S PRODUCTIVITY INCREASED OVER THE LAST FIVE YEARS?


<PAGE>   15
                                                                         14 - 15




We see the chance to become an increasingly important factor in the standard
 and preferred markets and will expand as we gain understanding of and
 confidence in our pricing, expense structure and service. Taken with our
 programs for recreational vehicles and small fleet commercial vehicles, plus
 auto insurance in Ontario, Canada, our potential market is approximately $115
 billion, making Progressive's share 1.5 percent, and leaving us much room to
 grow.
We continually revise rates in every program to reflect loss costs and
 expenses. During 1993, we became more competitive by reducing rates an average
 of .8 percent in existing private passenger auto programs. We did this by
 decreasing expenses and controlling loss costs. This compares with a 1.9
 percent increase in 1992 and larger increases in prior years. Offering agents
 a choice of lower commissions and serving more customers are steps toward
 offering auto insurance to every auto owner and operator at prices that will
 be competitive for many.
DISTRIBUTION  We want consumers to be able to buy Progressive insurance how,
 when and where THEY choose. We continued testing multiple distribution, which
 we call "Community Marketing," in the Miami and Tampa markets. These
 experiments involve consumer advertising, telephone quoting, and allowing
 customers to buy from an agent, at a company office, over the phone or by
 mail. Test results are encouraging, have produced some premium in new channels
 and, most importantly, have dramatically increased premium volume from
 independent agents, who have been and continue to be Progressive's most
 important channel of distribution.
PROCESS  We define a "process" as a collection of inputs, resources and
 activities focused on creating value for customers and shareholders.
 Resources include people, capital, technology, information and external
 suppliers. The key aspect of process management is  the design of how inputs
 and resources work together to delight customers, by reducing the error rate,
 cost and cycle time of the process.
We have a system for Process Leadership where Division Presidents serve in the
 dual role of line manager for their division and Process Leader for a key
 element of our business, such as Policy Quoting, Billing and Claims. Working
 with cross-divisional and cross-functional teams of line people to address
 specific issues, Process Leaders make key decisions for the process and
 oversee the design and implementation of "best practices" for the entire Core
 business for their process. This additional responsibility reinforces Division
 Presidents becoming a team because they work together not only to decide and
 execute business strategy but also to integrate processes.
EXPERIMENTATION  The transition from a niche provider of nonstandard auto to a
 broad-based provider of personal auto with compelling competitive advantages
 will take several years. Our approach is to test and refine our techniques in
 selected markets before expanding any aspect of the change. We have introduced
 disciplined experimental techniques and closely monitor the performance of all
 market tests against pre-agreed milestones.
CONTROLS  Recognizing the challenge of growing fast and simultaneously improving
 products and processes, we monitor performance against detailed forecasts
 which are updated monthly, and against monthly customer and employee surveys.
 We will curtail growth if service levels deteriorate, or if underwriting
 profit drops below four percent.
BRAND  We have begun to define a "Progressive Brand" for auto insurance,
 focusing on creating distinctive and delightful Buying, Ownership and Claims
 experiences for our customers. The purpose of brand development is to reduce
 the cost of acquiring a new customer and to increase customer retention.
 During 1993, we defined and improved internal methods that create positive
 customer experiences, and created an external com-munication package for the
 Progressive brand, by testing television, radio, print and targeted direct
 mail programs.



                  A - IT SURE HAS. OVER THAT PERIOD, OUR DIRECT PREMIUMS WRITTEN
           GREW 47 PERCENT WHILE THE NUMBER OF EMPLOYEES GREW ONLY FOUR PERCENT.
                      AS A RESULT, OUR DIRECT PREMIUMS PER PERSON INCREASED FROM
                                                           $228,000 TO $322,000.

<PAGE>   16
                                                                         16 - 17



 DIVERSIFIED DIVISIONS
Diversified divisions account for seven percent of Progressive's total volume.
 Past efforts to manage core and diversified divisions in the same way did not
 recognize important differences between them and detracted from the results of
 both. In 1993, we separated the Diversified divisions' information, claim
 handling and incentive compensation systems from those used by the Core
 divisions, and Diversified divisions began to accept risk in one of our
 wholly-owned subsidiary insurers, instead of Progressive Casualty, to keep
 the emerging Progressive brand focused on auto insurance and to insulate the
 Core business from distractions caused by Diversified divisions' operations.
 In 1994, we expect to further reduce both the risk in these businesses and
 their distraction from the Core business.
FINANCIAL SERVICES  Financial Services' principal product is collateral
 protection for automobile lenders. The division, enjoying its fourth
 consecutive profitable year, produced a 13 percent return on $90 million
 revenue, compared to a 14 percent return on $91 million revenue in 1992.
 During the year, we were privileged to begin serving Toyota Motor Services,
 First Interstate Bank and the Associates.
RISK MANAGEMENT SERVICES  Risk Management Services' principal customers are
 community banks. Its principal products are liability insurance for directors
 and officers and employee dishonesty insurance. Progressive shares the risk
 and premium on these coverages with a small mutual insurer controlled by its
 bank customers. The program is sponsored by the American Bankers Association.
 In 1993, Risk Management Services produced a 69 percent return on $16 million
 revenue, compared to 35 percent on $14 million revenue in 1992.
MOTOR CARRIER  The Motor Carrier Division manages involuntary commercial auto
 plans (CAIP) and pricing and risk management for select former customers of
 our defunct Transportation business as well as a growing number of
 intermediate size trucking companies, reinsuring them to limit Progressive's
 loss to $100,000 per occurrence. The Division produced a 13 percent return on
 $44 million revenue, compared to an 11 percent loss on $44 million revenue in
 1992.

 INVESTMENTS AND CAPITAL MANAGEMENT
The balance of revenue and profit comes from interest, dividends and capital
 gains produced by Progressive's invested assets ($2,786.4 million at December
 31, 1993, compared to $2,386.1 million at December 31, 1992). These funds are
 under the management of Progressive Partners, Inc., our investment and capital
 management subsidiary. Total investment income was $242.4 million before taxes
 and $177.2 million after taxes, compared to $153.5 million before taxes and
 $120.0 million after taxes in 1992. On December 31, 1993, our portfolio had
 $70.2 million in total unrealized gains, compared to $138.7 million at
 December 31, 1992. In 1993, we realized $107.9 million in capital gains, of
 which $74.3 million came from selling all the stock we owned in MBNA
 Corporation.
Progressive Partners, which became fully integrated as part of the Company
 during 1993, is guided by conservative investment and capital management
 policies which support Progressive's overriding focus on underwriting and are
 intended to assure that we always have enough capital to support all the
 insurance premium we can write profitably. In addition to the increase in
 capital from 1993's record earnings, we raised $177 million by selling common
 stock, to support the anticipated rapid expansion of our insurance business
 and to reduce the financial leverage which resulted from previous years' stock
 repurchases. To assure adequate capital at relatively low cost, we also raised
 $350 million during 1993 (the last $200 million closed January 12, 1994) by
 issuing long-term debt securities at some of the lowest interest rates
 available during the last twenty years.

Q - HOW DOES PROGRESSIVE PLAN FOR THE FUTURE?

<PAGE>   17
                                            





        Photograph: "Lens (Headlight, Hubcap, Grill)," Zeke Berman, 1994

<PAGE>   18
                                                                         18 - 19









            Photograph: "Headlight, Mirrors, Grill," Zeke Berman, 1993

<PAGE>   19





            Photograph: "Steering-wheel and Shoe," Zeke Berman, 1993

<PAGE>   20


<PAGE>   21
                                                                         20 - 21



   A - WE ANTICIPATE THAT CHANGE IS CONSTANT, ORGANIZE TO EMBRACE IT AND USE OUR
                             ABILITY TO RESPOND QUICKLY AS A TACTICAL ADVANTAGE.





WHAT PROGRESSIVE HAS CHANGED AND WHY

Progressive's consistent success stems from our great people, clear Core
 Values, ambitious objectives, high standards, constant creativity, data-driven
 decision making, customer-focussed organization, excellent partners and
 unusual flexibility. Our Core Value of "Excellence" guides us to "strive
 constantly to improve." From our beginning, Progressive has constantly raised
 standards, added more excellent people, developed better systems and controls,
 and explored new markets. Our ambition to be a major factor in the extremely
 competitive private passenger auto insurance business requires creativity in
 developing ways to attract new customers AND to provide superior service.
Six years ago, Progressive was enjoying what was our greatest year until then.
 As 1987 ended, we were confident that we could sustain profitable growth by
 continuing to do what we were doing. Eleven months later, we learned just how
 fast our circumstances can change. In November 1988, we were shocked into
 action when California voters passed Proposition 103, threatening auto
 insurance as we knew it. It opened our eyes to auto insurance consumers' anger
 and mistrust, and our vulnerability to capricious legislation and regulation.
 Consumer dissatisfaction with auto insurance appeared to put Progressive's
 existence in danger; we knew we had to do something. We pulled back in
 California, but the situation required much
 more positive action.
About the same time, we learned that Allstate had passed us in total U.S.
 volume on OUR specialty of nonstandard auto insurance, making it our most
 threatening competitor. After 25 years of observing Progressive's success,
 Allstate and other competitors, like the Penn Central companies, recognized
 that our high expense ratios and wide profit margins gave them a perfect
 opportunity to take market share from us by mimicking our programs, operating
 at lower cost and accepting slimmer profit margins. We saw that Allstate, with
 its distribution and data advantages, could overwhelm us unless we acted
 quickly and decisively.
Auto owners and operators reward Progressive in direct proportion to how our
 service, quality and cost compare to their options. In five years of intensive
 study of U.S. auto owners and operators, we are learning their needs and
 attitudes. We have concluded that Progressive has an opportunity to continue
 to grow profitably IF we work within our highly regulated, highly competitive,
 very staid industry, figuring out how to lower consumers' cost and improve
 their experience sufficiently to turn their anger with auto insurance to
 delight.
"Re-engineering" is what we have been doing to respond to these threats and
 opportunities, as well as to the changing environment.  The result is
 Progressive's new strategy for the 1990's. When we set on the path of change
 five years ago, not only were we uncertain where it would lead, but also did
 not realize how difficult it would be, how long it would take and how much of
 what we tried would not work. Our profitable growth has obscured many of the
 following profound, steady, incremental, continuing changes:
bullet EXPENSE REDUCTION -- Our underwriting expenses were among the industry's
 highest, but we passed them along by constantly increasing prices. Continuing
 cost reduction is a critically important initiative. We went through painful
 layoffs in 1991 and 1992, dramatically reducing costs, and we continue to
 drive them down by implementing operating efficiencies.

<PAGE>   22
bullet LOWER PROFIT MARGINS -- Our underwriting profit margins have been among
       the industry's highest. We have learned that margins greater than four
       percent are unsustainable and undesirable for the long-term, because
       good results lure effective competitors happy to operate at lower profit
       margins, as well as encouraging onerous regulation and legislation. We
       now strive to achieve our four percent target in each program, but not
       more, so as to keep prices attractive to customers and to make it more
       difficult for competitors to charge less and still make a profit. We
       expect to convert operating improvements into lower prices, written      
       premium growth and subsequent earnings growth.
        
bullet DIVERSIFICATION CURTAILED -- Our diversification efforts--both
       Transportation and Financial Services--were motivated by our not seeing
       the growth opportunities in personal auto insurance that we see today.
       In diversifying, we promoted many programs too fast, before fully
       understanding all the risks and how to price them. We are now more
       restrained and disciplined in how we develop new businesses.     
        
bullet REDUCED VARIATION -- We encouraged individual, relatively undisciplined 
       experimentation, resulting in unnecessarily expensive variation in our
       products and processes and some very unprofitable programs. Now we
       depend on cross-divisional and cross-functional teams, operating under
       careful control, to manage experiments while we seek to align our
       products and implement our best practices, driven by customer needs and
       wants.
bullet REDEFINE OUR BUSINESS -- Our concept was that we were in the
       auto insurance business. Now we know we are in the business of reducing
       the human trauma and economic costs of auto accidents. Our attitude
       about auto accidents was that more accidents costing more created a
       larger auto insurance market and more profit per transaction for us. Now
       we act on our conviction that we and our customers will be healthier and
       happier if there are fewer accidents costing less. 
        
bullet IMMEDIATE RESPONSE (registered trademark) CLAIMS SERVICE -- Our previous
       claim service objective (and accomplishment) was to provide the best
       available from any auto insurer. Now we are creating a whole new 
       standard for auto accident claim service by responding
        




Q - WHAT SERVICE LEVELS CAN CUSTOMERS EXPECT FROM PROGRESSIVE?

<PAGE>   23
                                                                         22 - 23

    THE TYPE OF SERVICE THAT CONSUMERS CAN'T EVEN IMAGINE IS POSSIBLE TODAY, BUT
       WILL BE COMMONPLACE IN THE FUTURE. WE PROVIDE IMMEDIATE RESPONSE TO THEIR
          REQUESTS FOR CLAIMS AND CUSTOMER SERVICE, 24 HOURS A DAY, SEVEN DAYS A
                                                          WEEK, 365 DAYS A YEAR.

 immediately on all claims in ways that delight our customers and claimants.
bullet BROADENED MARKET -- Our target customer was cancelled and rejected auto
       insureds. Now it is all auto owners and operators that can be profitably
       underwritten.
bullet MULTIPLE DISTRIBUTION -- We have historically depended almost entirely
       on the independent agents to distribute our products, despite knowing we
       could not stem the agency system's plummeting market share or the threat
       of that decline to Progressive. Now we are changing consumers'
       experience of auto insurance AND involving agents in a way that can
       REVERSE more than 30 years of market share loss by agents. At the same
       time, we have shifted our focus to the consumer and will distribute our
       products how, when and where the consumer wants to buy.
bullet CONSUMER INFORMATION -- Consumers' comparison shopping for auto insurance
       required a tiresome, confusing, unreliable search of agents and/or
       companies to obtain quotes they often found to be inaccurate and
       difficult to compare. In several states, we now offer consumers
       comparable, competitive quotes for their specific situation from the
       companies with the largest market share in their state.
bullet INVESTMENT AND CAPITAL MANAGEMENT -- Our philosophy, process and people
       for managing investments and capital involved policy setting and
       decision making by a committee comprised of independent money managers,
       investment bankers, consultants, operating managers and directors. Now
       investment professionals employed by Progressive are empowered to
       execute our clear, conservative investment philosophy and to lead it in
       different directions as circumstances change.
bullet CORE AND DIVERSIFIED BUSINESSES -- We worked for years to have all our
       businesses function within one organization, with the result that each
       sacrificed something. We are now separating the "Core" and "Diversified"
       businesses operationally and corporately to achieve the focus that makes
       both more efficient and effective.
bullet TEAMWORK -- Our organization was stable, structured and hierarchical.
       Now it involves interlocking and constantly changing teams established
       to understand and meet specific customer needs. Teams disband when their
       mission is complete. Our people interactions were top down, directive
       and internally competitive (win-lose). Now they are driven by people
       consulting and cooperating with each other to find better ways to serve
       our customers in a Total Quality Management environment (win-win).
bullet NEW COMPENSATION SYSTEM -- Our compensation was based on individual
       skills and scope of authority. It was more generous for the highest paid
       people, was predominantly salary and was applied inconsistently enough
       to irritate people. Now it is market-based with the same standards for
       all people and more aligned with shareholders' interest because total
       compensation can vary greatly from year to year depending on company,
       division, team and individual results. Our best performers earn at the
       top of the market in years we achieve our objectives and more when we
       surpass them. The new companywide bonus plan, which we call
       "gainsharing", reinforced these changes by paying Progressive's people
       $23.4 million for 1993's extraordinary performance.
bullet PROCESS LEADERSHIP -- Managing our important processes was impossible
       when doing so was a staff responsibility, because our excellent,
       strong-willed Division Presidents liked to do things their own way. Now
       we achieve regular cost savings and customer service improvements
       because most Division Presidents are individually responsible for a
       specific key process, and all have agreed to follow the others'
       leadership.
bullet CONSUMER IDENTITY -- Progressive is virtually unknown except to our
       agents and customers. We are now defining our "brand" and its symbolism,
       and beginning to communicate a unified and consistent image in order to
       develop our consumer franchise.
        

<PAGE>   24
                                                                         24 - 25

 CHANGE AND COMPETITION
Making all these changes demanded much of our people. There were
 disappointments, failures and large costs, but what we have done may allow
 Progressive to offer all auto owners and operators lifetime insurance, easy
 comparison shopping, and superb service, as well as providing the lowest cost
 to many. Progressive will reduce its customers' and claimants' trauma and
 costs caused by auto accidents with immediate, around-the-clock service,
 in-person when appropriate on a claim.
These changes will work into our businesses slowly and unevenly. Our divisions
 and departments are in different stages of evolution toward Progressive's
 vision. The strategy is driven by our strong belief that lower prices, more
 information, more options and immediate service will delight customers and
 make it possible for us to achieve our ambitious objectives.
In Florida, we are testing how many of these changes operate together.
 Consumers can now call 1-800-AUTO-PRO( service mark) 24 hours a day, seven
 days a week,  and in ten minutes get an accurate list of the prices charged by
 State Farm, Allstate, Prudential and Progressive for the caller's particular
 insurance package. Progressive will accept and guarantee to renew every
 consumer who chooses to insure with us, and will help them purchase their auto
 insurance either through an independent insurance agent, at a Progressive
 operated location, by telephone or through the mail. We will tell callers who
 ask how to get in touch with the competitors.  
Once insured with Progressive, our customers can call us at any time about
 claims, policy changes, payment status and other services. Whenever our
 customer, the claimant or Progressive feels it is appropriate, a Progressive
 person will almost always be face-to-face with our customer or the claimant
 within hours of our receiving the first call.
To the extent that competitors effectively copy (and improve on) our good
 ideas, Progressive will have less opportunity for rapid growth and unusually
 good profit margins. But that is the beauty of competitive free-enterprise for
 consumers and for society, and why the system should be honored, nurtured and
 sustained. If competitors follow Progressive's lead, auto insurance will
 become less of a political football. Auto insurers will be partners in
 changing insurance regulation and improving traffic safety, not victims of
 sometimes opportunistic finger-pointers. The system will work better for
 consumers, and everybody will win because there will be fewer, less costly
 accidents that cause less human trauma.

Q - WHAT DOES PROGRESSIVE SEE AS AN ESPECIALLY GREAT RISK?

<PAGE>   25





                Photograph: "Belts Triptych," Zeke Berman, 1994

<PAGE>   26





               Photograph: "Seatbelt Diptych," Zeke Berman, 1994

<PAGE>   27
                                                                         26 - 27





     A - INSURANCE LAWS AND REGULATIONS CHANGE CONTINUALLY. WE REACT PROMPTLY TO
      THESE CHANGES WHEN THEY PROHIBIT US FROM MAKING OUR TARGET PROFIT MARGINS.

 RISKS

We perceive Progressive's opportunity as one which must be realized now. The
 risk of competitors copying and improving on what we are doing, or of new
 restrictive regulation (or both) inhibiting our ability to do it, leads us to
 want to develop and spread our new price levels, services and ways of doing
 business throughout the United States as quickly as possible. Here are factors
 shareholders need to understand concerning 1994 earnings and the risks in our
 strategy:
bullet LEGISLATIVE AND REGULATORY RISK -- Insurance laws and regulations change
       continually. We react promptly when they prohibit us from making our
       target profit margins. Such reaction could result in reduced volume.
        

bullet UNPREDICTABLE UNDERWRITING MARGIN AND GROWTH RATE - Margins in auto
       insurance are inherently unstable. In the short run, pricing to produce
       our long-time four percent underwriting profit goal means operating
       earnings may not increase in proportion to volume growth. Our growth
       rate will be influenced by agent and competitor reaction to our
       strategies, and by the trend in loss costs. WE CANNOT PREDICT WITH ANY
       PRECISION THE TIMING AND PACE OF THE DECREASE IN UNDERWRITING MARGINS
       NOR THE RATE OF GROWTH.
        

bullet OPERATING EARNINGS VOLATILITY -- Growth requires investment in training, 
       new systems and improved processes, and rapid growth can generate
       expensive mistakes. This risk and our continuing to do nothing to
       influence current earnings or the price of our stock could make
       short-term earnings trends difficult to predict.
        

bullet UNPREDICTABLE INVESTMENT INCOME -- The average maturity of our $2.6
       billion fixed-income portfolio is approximately two years, meaning
       investment income is unusually sensitive to short-term interest rates.
       This could be a positive if rates go up as many predict.
        

bullet PRICING RISK -- We may not yet have learned quite enough to price
       standard and preferred auto insurance to produce our planned results.
       This risk is small because our commitment to the philosophy that
       "Progressive's alternative to making its targeted underwriting profit is
       not to do business" requires us to change rates immediately when
       experience dictates.
        

bullet GROWTH ITSELF -- To accomplish our objectives, we must build many new
       systems, train thousands of claim and telephone service people, continue
       to improve our claim handling and ability to sell by telephone, align
       our products, validate new pricing criteria AND simultaneously continue
       to reduce costs. We have experience managing our planned level of growth
       (including periods when we grew at 40 percent compounded) but not at our
       current size.

<PAGE>   28
                                                                         28 - 29




 THE FUTURE

Progressive can and will lead a wave of change in the United States system for
 dealing with auto accident injuries and property damage. We believe we will
 reduce accident victims' trauma and costs, improve how consumers feel about
 auto insurance and be rewarded handsomely for our leadership.
1993's results are significant, not only because a profit surge is always
 welcome, but because, heartened by our success, we will pursue our new
 strategy. We will expand our core private passenger auto insurance business at
 a pace that will test our ability to provide the service we guarantee, could
 reduce 1994 and 1995 earnings growth and may unnerve investors who focus
 disproportionately on short-term earnings. This approach is consistent with
 our strategy of creating long-term capital appreciation.
Much will be required to realize our vision. Thus we begin 1994 as we began all
 other years--excited, respectful of the challenge implicit in our objectives
 and strategy, humbled by our failures, proud of having responded to them and
 confident that our excellent people will continue to achieve superior results.
 At Progressive, it is always as if we are just beginning our business and
 looking at a future that is brighter than ever.
We deeply appreciate the customers we are privileged to serve. Thank you for
 your business, and thanks especially to the more than 30,000 independent
 insurance agents who chose to do business with Progressive in 1993. We are
 particularly grateful for our shareholders' continued confidence. Happily,
 1993 was a year in which the men and women of Progressive rebounded from the
 stresses and anxieties implicit in any change. To you, thanks for all your
 contributions in 1993 and the promise you bring to our future.


                         Joy, Love and Peace

                         Peter B. Lewis, Chairman, President
                         and Chief Executive Officer

<PAGE>   29





                Photograph: "Road 1, Road 2," Zeke Berman, 1993

<PAGE>   30





  Photograph: "Tour (Lightbulb and Steering-wheel Diptych)," Zeke Berman, 1993

<PAGE>   31





  Photograph: "Tour (Lightbulb and Steering-wheel Diptych)," Zeke Berman, 1993

<PAGE>   32
1993                 Financial                    Review                 32 - 33









    Consolidated Financial Statements 34 Management's Discussion and Analysis 47
                                                           Ten Year Summaries 50





Loss Reserves 54 Direct Premiums Written by State 54 Quarterly Financial and
Common Share Data 55

<PAGE>   33

REPORT OF COOPERS & LYBRAND, INDEPENDENT ACCOUNTANTS


TO THE BOARD OF DIRECTORS AND SHAREHOLDERS, THE PROGRESSIVE CORPORATION:

We have audited the accompanying consolidated balance sheets of The Progressive
 Corporation and subsidiaries as of December 31, 1993 and 1992, and the related
 consolidated statements of income, changes in shareholders' equity and cash
 flows for each of the three years in the period ended December 31, 1993. These
 financial statements are the responsibility of The Progressive Corporation and
 subsidiaries' management. Our responsibility is to express an opinion on these
 financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
 standards. Those standards require that we plan and perform the audit to
 obtain reasonable assurance about whether the financial statements are free of
 material misstatement. An audit includes examining, on a test basis, evidence
 supporting the amounts and disclosures in the financial statements. An audit
 also includes assessing the accounting principles used and significant
 estimates made by management, as well as evaluating the overall financial
 statement presentation. We believe that our audits provide a reasonable basis
 for our opinion.
In our opinion, the financial statements referred to above present fairly, in
 all material respects, the consolidated financial position of The Progressive
 Corporation and subsidiaries as of December 31, 1993 and 1992, and the
 consolidated results of their operations and their cash flows for each of the
 three years in the period ended December 31, 1993, in conformity with
 generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, in 1993, The
 Progressive Corporation and subsidiaries adopted the provisions of Statement
 of Financial Accounting Standards No. 113, "Accounting and Reporting for
 Reinsurance of Short-Duration and Long-Duration Contracts."

Coopers & Lybrand

Cleveland, Ohio
January 26, 1994

<PAGE>   34

<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>

                                                                                     (millions-except per share amounts)

 For the years ended December 31,                                                        1993          1992          1991
<S>                                                                              <C>            <C>           <C>
NET PREMIUMS WRITTEN                                                             $    1,819.2   $   1,451.2   $   1,324.6
                                                                                 ============   ===========   ===========

REVENUES
 Premiums earned  . . . . . . . . . . . . . . . . . . . . . . . . . . . .        $    1,668.7   $   1,426.1   $   1,286.9
 Investment income  . . . . . . . . . . . . . . . . . . . . . . . . . . .               134.5         139.0         144.8
 Net realized gains on security sales   . . . . . . . . . . . . . . . . .               107.9          14.5           7.4
 Service revenues   . . . . . . . . . . . . . . . . . . . . . . . . . . .                43.7          53.3          54.0
 Proposition 103 reserve reduction  . . . . . . . . . . . . . . . . . . .                  --         106.0            --
                                                                                 ------------   -----------   -----------
   Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .             1,954.8       1,738.9       1,493.1
                                                                                 ------------   -----------   -----------
EXPENSES
 Losses and loss adjustment expenses  . . . . . . . . . . . . . . . . . .             1,028.0         930.9         858.0
 Policy acquisition costs   . . . . . . . . . . . . . . . . . . . . . . .               311.6         304.1         313.7
 Other underwriting expenses  . . . . . . . . . . . . . . . . . . . . . .               151.3         141.5         162.1
 Investment expenses  . . . . . . . . . . . . . . . . . . . . . . . . . .                10.2          17.0          22.5
 Service expenses   . . . . . . . . . . . . . . . . . . . . . . . . . . .                36.9          57.6          56.1
 Interest expense   . . . . . . . . . . . . . . . . . . . . . . . . . . .                39.7          44.5          47.8
 Non-recurring items1   . . . . . . . . . . . . . . . . . . . . . . . . .                 4.0          64.6            --
                                                                                 ------------   -----------   -----------
   Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .             1,581.7       1,560.2       1,460.2
                                                                                 ------------   -----------   -----------

NET INCOME
 Income before Federal income taxes   . . . . . . . . . . . . . . . . . .               373.1         178.7          32.9
 Provision for Federal income taxes   . . . . . . . . . . . . . . . . . .               105.8          39.1            --
                                                                                 ------------   -----------   -----------
 Income before cumulative effect of accounting change   . . . . . . . . .               267.3         139.6          32.9
 Cumulative effect of adopting SFAS 109   . . . . . . . . . . . . . . . .                  --          14.2            --
                                                                                 ------------   -----------   -----------
 Net income   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        $      267.3   $     153.8   $      32.9
                                                                                 ============   ===========   ===========

PER SHARE
 Income before cumulative effect:
   Primary  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        $       3.59   $      2.09   $       .41
   Fully diluted  . . . . . . . . . . . . . . . . . . . . . . . . . . . .                3.58          1.85           .41
Cumulative effect of adopting SFAS 109:
   Primary  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                 --            .23           --
   Fully diluted  . . . . . . . . . . . . . . . . . . . . . . . . . . . .                 --            .20           --
 Net income:
   Primary  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        $       3.59   $      2.32   $       .41
   Fully diluted  . . . . . . . . . . . . . . . . . . . . . . . . . . . .                3.58          2.05           .41

<FN>
1See Note 5-Debt and Note 10-Related Party Transactions for discussion.

 All per share amounts were adjusted for the December 8, 1992, 3-for-1 stock split.

 See notes to consolidated financial statements.
</TABLE>






The Progressive Corporation and Subsidiaries

<PAGE>   35
                                                                         34 - 35

<TABLE>
CONSOLIDATED BALANCE SHEETS 
<CAPTION>
                                                                                                              (millions)

 December 31,                                                                                          1993          1992
<S>                                                                                             <C>           <C>
ASSETS
 Investments:
   Held-to-maturity:
    Fixed maturities, at amortized cost (market: $327.4 and $271.2)   . . . . . . . . .         $     309.1   $     250.4
   Available-for-sale:
    Fixed maturities, at market (amortized cost: $1,761.9 and $1,408.0)   . . . . . . .             1,792.6       1,437.1
    Equity securities, at market (cost: $433.2 and $310.3)  . . . . . . . . . . . . . .               453.9         398.6
   Short-term investments, at amortized cost (market: $231.3 and $300.5)  . . . . . . .               230.8         300.0
                                                                                                -----------   -----------
      Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             2,786.4       2,386.1
 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                 8.7          22.9
 Accrued investment income  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                33.7          27.1
 Premiums receivable, net of allowance for doubtful accounts of $8.7 and $8.9   . . . .               380.6         312.0
 Reinsurance recoverables   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               380.9         357.8
 Prepaid reinsurance premiums   . . . . . . . . . . . . . . . . . . . . . . . . . . . .                84.6          78.0
 Deferred acquisition costs   . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               124.6         101.3
 Federal income taxes   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                78.5          58.5
 Property and equipment, net of accumulated depreciation of $107.1 and $95.1  . . . . .               106.7          63.5
 Other assets   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                26.6          33.7
                                                                                                -----------   -----------
       Total assets   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         $   4,011.3   $   3,440.9
                                                                                                ===========   ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
 Unearned premiums  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         $     772.0   $     614.8
 Loss and loss adjustment expense reserves  . . . . . . . . . . . . . . . . . . . . . .             1,348.6       1,274.2
 Policy cancellation reserve  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                60.1          52.1
 Accounts payable and accrued expenses  . . . . . . . . . . . . . . . . . . . . . . . .               355.6         302.3
 Funded debt  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               477.1         568.5
                                                                                                -----------   -----------
      Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             3,013.4       2,811.9
                                                                                                -----------   -----------
 Shareholders' equity:
   Serial Preferred Shares (authorized 20.0)
    9 3/8% Serial Preferred Shares, Series A, no par value,
      cumulative, liquidation preference $25.00 per share (issued
      and outstanding 3.6 and 4.0)  . . . . . . . . . . . . . . . . . . . . . . . . . .                87.9          96.4
   Common Shares, $1.00 par value (authorized 200.0, issued 82.2 and 77.1,
      including treasury shares of 10.1 and 10.0) . . . . . . . . . . . . . . . . . . .                72.1          67.1
   Paid-in capital  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               357.6         180.7
   Net unrealized appreciation on investment securities . . . . . . . . . . . . . . . .                33.5          77.5
   Retained earnings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               446.8         207.3
                                                                                                -----------   -----------
      Total shareholders' equity  . . . . . . . . . . . . . . . . . . . . . . . . . . .               997.9         629.0
                                                                                                -----------   -----------
       Total liabilities and shareholders' equity   . . . . . . . . . . . . . . . . . .         $   4,011.3   $   3,440.9
                                                                                                ===========   ===========

<FN>
See notes to consolidated financial statements.
</TABLE>






The Progressive Corporation and Subsidiaries

<PAGE>   36

<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<CAPTION>

                                                                                     (millions--except per share amounts)

  For the years ended December 31,                                                       1993          1992          1991
<S>                                                                              <C>            <C>           <C>
PREFERRED SHARES, NO PAR VALUE                                                   
 Balance, Beginning of year   . . . . . . . . . . . . . . . . . . . . . .        $       96.4   $      96.4            --
   Sale of Preferred Shares, Series A . . . . . . . . . . . . . . . . . .                  --            --   $      96.4
   Treasury shares purchased-cost basis . . . . . . . . . . . . . . . . .                (8.5)           --            --
                                                                                 ------------   -----------   -----------
 Balance, End of year   . . . . . . . . . . . . . . . . . . . . . . . . .        $       87.9   $      96.4   $      96.4
                                                                                 ------------   -----------   -----------

COMMON SHARES, $1 PAR VALUE
 Balance, Beginning of year   . . . . . . . . . . . . . . . . . . . . . .        $       67.1   $      21.1   $      23.1
   Stock options exercised  . . . . . . . . . . . . . . . . . . . . . . .                  .1            .5            --
   Stock rights issued (cancelled)  . . . . . . . . . . . . . . . . . . .                  --           (.1)           --
   Sale of Common Shares  . . . . . . . . . . . . . . . . . . . . . . . .                 5.0            --            --
   Treasury shares purchased  . . . . . . . . . . . . . . . . . . . . . .                 (.1)         (1.9)         (2.0)
   Capitalization of stock split  . . . . . . . . . . . . . . . . . . . .                  --          38.5            --
   Conversion of convertible debenture  . . . . . . . . . . . . . . . . .                  --           9.0            --
                                                                                 ------------   -----------   -----------
 Balance, End of year   . . . . . . . . . . . . . . . . . . . . . . . . .        $       72.1   $      67.1   $      21.1
                                                                                 ------------   -----------   -----------

PAID-IN CAPITAL
 Balance, Beginning of year   . . . . . . . . . . . . . . . . . . . . . .        $      180.7   $     118.7   $     126.5
   Stock options exercised  . . . . . . . . . . . . . . . . . . . . . . .                 1.7           3.7            --
   Stock rights issued  . . . . . . . . . . . . . . . . . . . . . . . . .                 3.5           2.8           3.2
   Sale of Common Shares  . . . . . . . . . . . . . . . . . . . . . . . .               172.0            --            --
   Treasury shares purchased  . . . . . . . . . . . . . . . . . . . . . .                 (.3)        (10.5)        (11.0)
   Conversion of convertible debenture  . . . . . . . . . . . . . . . . .                  --          66.0            --
                                                                                 ------------   -----------   -----------
 Balance, End of year   . . . . . . . . . . . . . . . . . . . . . . . . .        $      357.6   $     180.7   $     118.7
                                                                                 ------------   -----------   -----------

NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENT SECURITIES
 Balance, Beginning of year   . . . . . . . . . . . . . . . . . . . . . .        $       77.5   $      20.7   $     (28.3)
   Change in net unrealized appreciation (depreciation) . . . . . . . . .               (44.0)         56.8          49.0
                                                                                 ------------   -----------   -----------
 Balance, End of year   . . . . . . . . . . . . . . . . . . . . . . . . .        $       33.5   $      77.5   $      20.7
                                                                                 ------------   -----------   -----------

RETAINED EARNINGS
 Balance, Beginning of year   . . . . . . . . . . . . . . . . . . . . . .        $      207.3   $     208.8   $     287.2
   Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               267.3         153.8          32.9
   Cash dividends on Preferred Shares (9 3/8% annually) . . . . . . . . .                (9.2)         (9.4)         (5.7)
   Cash dividends on Common Shares ($.200, $.191
    and $.172 per share, split effected)  . . . . . . . . . . . . . . . .               (13.9)        (11.4)        (11.3)
   Treasury shares purchased: Preferred Shares  . . . . . . . . . . . . .                (1.3)           --            --
                              Common Shares . . . . . . . . . . . . . . .                (2.0)        (93.5)        (94.3)
   Capitalization of stock split  . . . . . . . . . . . . . . . . . . . .                  --         (38.5)           --
   Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                (1.4)         (2.5)           --
                                                                                 ------------   -----------   -----------
 Balance, End of year   . . . . . . . . . . . . . . . . . . . . . . . . .        $      446.8   $     207.3   $     208.8
                                                                                 ------------   -----------   -----------

 TOTAL SHAREHOLDERS' EQUITY   . . . . . . . . . . . . . . . . . . . . . .        $      997.9   $     629.0   $     465.7
                                                                                 ============   ===========   ===========
<FN>
The 9 3/8% Serial Preferred Shares, Series A, may be redeemed at the Company's option any time on or after May 31, 1996. There are 
5.0 million Voting Preference Shares authorized; no such shares have been issued.

See notes to consolidated financial statements.
</TABLE>






The Progressive Corporation and Subsidiaries

<PAGE>   37
                                                                         36 - 37

<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS 
<CAPTION>
                                                                                                              (millions)

 For the years ended December 31,                                                        1993          1992          1991
<S>                                                                              <C>            <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES

 Income before cumulative effect of accounting change   . . . . . . . . .        $      267.3   $     139.6   $      32.9
 Adjustments to reconcile income to net
   cash provided by operating activities:
  Depreciation and amortization  . . . . . . . . . . . . . . . . . . . .                 16.1          24.3          28.4
  Net realized gains on security sales . . . . . . . . . . . . . . . . .               (107.9)        (14.5)         (7.4)
  Changes in:
   Unearned premiums   . . . . . . . . . . . . . . . . . . . . . . . . .                157.2          19.8          51.0
   Loss and loss adjustment expense reserves   . . . . . . . . . . . . .                 74.4         197.1         149.7
   Accounts payable and accrued expenses   . . . . . . . . . . . . . . .                  6.2        (154.9)        139.4
   Policy cancellation reserve   . . . . . . . . . . . . . . . . . . . .                  8.0         (13.5)         (4.7)
   Prepaid reinsurance   . . . . . . . . . . . . . . . . . . . . . . . .                 (6.6)          5.3         (12.7)
   Reinsurance recoverables  . . . . . . . . . . . . . . . . . . . . . .                (23.1)       (103.0)       (118.3)
   Premiums receivable   . . . . . . . . . . . . . . . . . . . . . . . .                (68.6)         11.3         (43.2)
   Deferred acquisition costs  . . . . . . . . . . . . . . . . . . . . .                (23.3)          8.9          (5.7)
   Federal income taxes  . . . . . . . . . . . . . . . . . . . . . . . .                  2.0          22.7         (32.9)
   Other, net  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                 21.8           7.5          14.1
                                                                                 ------------   -----------   -----------
      Net cash provided by operating activities . . . . . . . . . . . . .               323.5         150.6         190.6

CASH FLOWS FROM INVESTING ACTIVITIES

 Purchases:
   Held-to-maturity:   fixed maturities   . . . . . . . . . . . . . . . .              (118.1)       (135.0)     (1,083.0)
   Available-for-sale: fixed maturities   . . . . . . . . . . . . . . . .            (1,215.6)     (1,089.6)           --
                       equity securities  . . . . . . . . . . . . . . . .              (358.4)       (123.3)       (198.6)
 Sales:
   Available-for-sale:  fixed maturities  . . . . . . . . . . . . . . . .               323.7         419.4            --
                        equity securities . . . . . . . . . . . . . . . .               326.1         134.1          99.6
 Maturities, paydowns, calls and other:
   Held-to-maturity:   fixed maturities   . . . . . . . . . . . . . . . .                59.5         262.2         813.6
   Available-for-sale: fixed maturities   . . . . . . . . . . . . . . . .               528.5         354.1            --
 Net sales of short-term investments  . . . . . . . . . . . . . . . . . .                69.2         188.1         229.5
(Receivable) payable on securities  . . . . . . . . . . . . . . . . . . .                55.9         (21.4)         22.6
 Purchase of property and equipment   . . . . . . . . . . . . . . . . . .               (60.0)        (17.5)        (45.1)
 Sale of property and equipment   . . . . . . . . . . . . . . . . . . . .                  --           5.4            --
                                                                                 ------------   -----------   -----------
      Net cash used in investing activities   . . . . . . . . . . . . . .              (389.2)        (23.5)       (161.4)

CASH FLOWS FROM FINANCING ACTIVITIES

 Proceeds from exercise of stock options  . . . . . . . . . . . . . . . .                 1.8           4.2            --
 Proceeds from issuance of stock    . . . . . . . . . . . . . . . . . . .               177.0            --          96.4
 Proceeds from funded debt  . . . . . . . . . . . . . . . . . . . . . . .               148.2         170.0         170.0
 Payments of funded debt  . . . . . . . . . . . . . . . . . . . . . . . .              (240.2)       (170.9)       (170.8)
 Dividends paid to shareholders   . . . . . . . . . . . . . . . . . . . .               (23.1)        (20.8)        (17.0)
 Acquisition of treasury shares   . . . . . . . . . . . . . . . . . . . .               (12.2)       (105.9)       (107.3)
                                                                                 ------------   -----------   ----------- 
      Net cash provided by (used in) financing activities . . . . . . . .                51.5        (123.4)        (28.7)
                                                                                 ------------   -----------   ----------- 
 Increase (decrease) in cash  . . . . . . . . . . . . . . . . . . . . . .               (14.2)          3.7            .5
 Cash, Beginning of year  . . . . . . . . . . . . . . . . . . . . . . . .                22.9          19.2          18.7
                                                                                 ------------   -----------   -----------
 Cash, End of year  . . . . . . . . . . . . . . . . . . . . . . . . . . .        $        8.7   $      22.9   $      19.2
                                                                                 ============   ===========   ===========

<FN>
 See notes to consolidated financial statements.
</TABLE>






The Progressive Corporation and Subsidiaries

<PAGE>   38

NOTES          TO           CONSOLIDATED          FINANCIAL          STATEMENTS

December 31, 1993, 1992 and 1991



1.  REPORTING AND ACCOUNTING POLICIES

BASIS OF CONSOLIDATION AND REPORTING  The accompanying consolidated financial
 statements include the accounts of The Progressive Corporation and
 subsidiaries (the Company), all of which are wholly owned. All significant
 intercompany accounts and transactions are eliminated in consolidation. The
 Company's investments in subsidiaries exceeded their underlying book value at
 dates of acquisition by $4.0 million. In the opinion of management, there is
 no present indication of diminished value; however, in accordance with
 generally accepted accounting principles, $2.4 million of that amount is being
 amortized over 25 years.
INVESTMENTS  Held-to-maturity: fixed maturity securities are securities which
 the Company has the positive intent and ability to hold to maturity. These
 securities are reported at amortized cost with the difference between the
 original cost and redemption value of these securities earned over the lives
 of the respective issues and included in investment income.
Available-for-sale: fixed maturity securities are securities held for
 indefinite periods of time, and may be used as a part of the Company's
 asset/liability strategy or sold in response to changes in interest rates,
 anticipated prepayments, risk/reward characteristics, liquidity needs or other
 similar economic factors. These securities are carried at market value with
 the corresponding unrealized appreciation or depreciation, net of deferred
 income taxes, reflected in shareholders' equity.
Available-for-sale: equity securities include common stocks and nonredeemable
 preferred stocks and are reported at quoted market values. Changes in the
 market values of these securities, net of deferred income taxes, are reflected
 directly as unrealized appreciation or depreciation in shareholders' equity.
Trading securities are securities bought and held principally for the purpose
 of selling them in the near term and are reported at market value. Changes in
 market value are reflected in earnings. The Company has no trading securities
 as of December 31, 1993.
Short-term investments include certificates of deposit, commercial paper and
 other securities maturing within one year and are reported at amortized cost,
 which approximates market.
Financial instruments with off-balance-sheet risk are used in normal investment
 activities and include commitments to extend credit and various forward,
 future and interest rate swap positions. Risk is individually evaluated for
 each position. The difference between the cost and market value of these
 instruments is included in "net realized gains (losses) on security sales"
 when realized.
Realized gains and losses on sales of securities are computed based on the
 first-in first-out method.  
PROPERTY AND EQUIPMENT  Property and equipment is recorded at cost. 
 Depreciation is provided over the estimated useful lives for assets using 
 accelerated methods.
As of December 31, 1993, the Company had contractual commitments related to the
 construction of its new corporate office complex totalling $69.4 million, of
 which $50.5 million had been paid through 1993. Capitalized interest costs
 were $2.7 million in 1993 and $.3 million in 1992.
INSURANCE PREMIUMS AND RECEIVABLES  Insurance premiums written are earned
 primarily on a pro rata basis over the period of risk. For products where more
 than 50 percent cancellations are anticipated, premiums written and earned are
 reduced, though cancellations have not yet occurred.
The Company provides insurance and related services to individuals, lenders and
 motor carriers throughout the United States and in Canada, and offers a
 variety of payment plans to meet individual customer needs. Generally,
 premiums are collected in advance of providing risk coverage, minimizing the
 Company's exposure to credit risk.
Prior to the second quarter 1992, the Company established a reserve for
 potential premium refunds under provisions of California Proposition 103; this
 reserve reduced premiums written and earned $10.2 million in 1992 and $49.7
 million in 1991.
LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES  Loss reserves represent the estimated
 liability on claims reported to the Company, plus reserves for losses incurred
 but not yet reported. Loss adjustment expense reserves represent the estimated
 expenses required to settle these claims and losses. These estimates are
 reported net of amounts recoverable from salvage and subrogation. The methods
 of making estimates and establishing these reserves are reviewed regularly,
 and resulting adjustments are reflected in income currently. A supplemental
 loss reserve provides 98 percent statistical confidence that reserves are
 adequate. The supplemental reserve was $73.1 million (net of $17.6 million of
 reinsurance recoverables) at both December 31, 1993 and 1992. See Management's
 Discussion and Analysis for further discussion.
REINSURANCE  The Company's reinsurance transactions are primarily attributable
 to premiums written under state-mandated involuntary plans for commercial
 vehicles (Commercial Auto Insurance Plans-CAIP), for which the Company retains
 no indemnity risk. The remaining reinsurance arises from the Company seeking
 to reduce its loss exposure in its non-auto businesses. Prepaid reinsurance
 premiums are recognized on a pro rata basis over the period of risk.
EARNINGS PER SHARE  Net income is reduced by Preferred Share dividends earned
 during the period for both the primary and fully diluted earnings per share
 calculations. Primary earnings per share are computed using the weighted
 number of Common Shares and equivalents, including stock options, assumed
 outstanding during the period. For 1992 and prior, fully diluted earnings per
 share assumed the conversion of the convertible debt instrument and the
 effects of related interest expense and income taxes.



The Progressive Corporation and Subsidiaries

<PAGE>   39
                                                                         38 - 39



DEFERRED ACQUISITION COSTS  Deferred acquisition costs include commissions,
 premium taxes and other costs incurred in connection with writing business.
 These costs are deferred and amortized over the period in which the related
 premiums are earned. The Company considers anticipated investment income in
 determining the recoverability of these costs.
In 1993, the Company early adopted Statement of Position 93-7, "Reporting on
 Advertising Costs," which provides guidance on financial reporting of
 advertising costs. Included in "other assets" for 1993 are $1.6 million of
 direct-response advertising costs, which are capitalized and amortized over
 the estimated period of the benefits. Direct-response advertising costs
 consist primarily of direct mail expenses and are amortized over a two- to
 four-year period.
SERVICE REVENUES AND EXPENSES  Service revenues are earned on a pro rata basis
 over the term of the related policies; acquisition expenses are deferred and
 amortized over the period in which the related revenues are earned.
SUPPLEMENTAL CASH FLOW INFORMATION  Cash includes only bank demand deposits. The
 Company paid Federal income taxes of $91.0 million, $4.0 million and $30.4
 million in 1993, 1992 and 1991, respectively. Total interest paid was $38.3
 million for 1993, $44.2 million for 1992 and $47.2 million for 1991. In 1992,
 the $75.0 million Floating Rate Convertible Subordinated Debenture due 2008
 was converted into 9.0 million Common Shares.
The Company effected a 3-for-1 stock split in the form of a dividend to
 shareholders on December 8, 1992. The Company reflected the issuance of the
 additional Common Shares by transferring $38.5 million from retained earnings
 to the common stock account. All per share, average equivalent share amounts
 and stock prices were adjusted to give effect to the split. Treasury shares
 were not split.
RECLASSIFICATIONS  Certain amounts in the financial statements for prior periods
 were reclassified to conform with the 1993 presentation.

2.  INVESTMENTS

As of December 31, 1993, the Company elected to early adopt Statement of
 Financial Accounting Standards (SFAS) 115 "Accounting for Certain Investments
 in Debt and Equity Securities." For 1993, the adoption of SFAS 115 did not
 have any effect on the Company's results of operations or financial position.

The components of pretax investment income at December 31 were:


<TABLE>
<CAPTION>
    (millions)                                                                1993            1992            1991
 <S>                                                                     <C>             <C>             <C>
 Held-to-maturity:   fixed maturities   . . . . . . . . . .              $    17.4       $    23.2       $    92.2
 Available-for-sale: fixed maturities   . . . . . . . . . .                   88.7            82.4              --
                     equity securities  . . . . . . . . . .                   19.8            23.4            21.4
 Short-term investments   . . . . . . . . . . . . . . . . .                    8.6            10.0            31.2
                                                                     --------------  --------------  --------------
   Investment income  . . . . . . . . . . . . . . . . . . .                  134.5           139.0           144.8

 Gross realized gains:
   Held-to-maturity: fixed maturities . . . . . . . . . . .                    1.0              .5            16.2
   Available-for-sale: fixed maturities . . . . . . . . . .                   20.9            14.9              --
                       equity securities  . . . . . . . . .                  102.3             4.5             8.8
   Short-term investments . . . . . . . . . . . . . . . . .                     --              --              .1
 Gross realized losses:
   Held-to-maturity: fixed maturities . . . . . . . . . . .                     --              --            (1.0)
   Available-for-sale: fixed maturities . . . . . . . . . .                   (4.6)           (4.2)             --
                       equity securities  . . . . . . . . .                  (11.7)           (1.2)          (16.7)
                                                                     --------------  --------------  --------------
    Net realized gains on security sales  . . . . . . . . .                  107.9            14.5             7.4
                                                                     --------------  --------------  --------------
                                                                         $   242.4       $   153.5       $   152.2
                                                                     ==============  ==============  ==============
</TABLE>


Changes in unrealized gains (losses) on fixed maturities and equity securities 
were:


<TABLE>
<CAPTION>
    (millions)                                                                1993            1992            1991
 <S>                                                                     <C>             <C>             <C>
 Unrealized gains (losses):
   Held-to-maturity: fixed maturities . . . . . . . . . . .              $    (2.5)      $   (28.3)      $    35.6
                                                                     ==============  ==============  ==============
   Available-for-sale: fixed maturities . . . . . . . . . .              $     1.6       $    29.1       $      --
                       equity securities  . . . . . . . . .                  (67.6)           56.9            74.2
   Deferred income taxes  . . . . . . . . . . . . . . . . .                   22.0           (29.2)          (25.2)
                                                                     --------------  --------------  --------------
                                                                         $   (44.0)      $    56.8       $    49.0
                                                                     ==============  ==============  ==============
</TABLE>


<PAGE>   40
 The composition of the investment portfolio at December 31 was:

<TABLE>
<CAPTION>
                                                                                        GROSS         GROSS
                                                                                   UNREALIZED    UNREALIZED        MARKET
    (millions)                                                           COST           GAINS        LOSSES         VALUE
<S>                                                                 <C>           <C>             <C>           <C>
1993
 Held-to-maturity:
  State and local government obligations  . . . . . . . .           $   309.1     $      19.8     $    (1.5)    $   327.4

 Available-for-sale:
  U.S. government obligations   . . . . . . . . . . . . .                20.5              .3            --          20.8
  State and local government obligations  . . . . . . . .               819.8            18.2          (2.3)        835.7
  Foreign government obligations  . . . . . . . . . . . .                31.8             3.8          (1.8)         33.8
  Corporate debt securities   . . . . . . . . . . . . . .               107.5             5.4           (.2)        112.7
  Asset-backed securities   . . . . . . . . . . . . . . .               732.8             8.3          (4.9)        736.2
  Other debt securities   . . . . . . . . . . . . . . . .                49.5             4.7           (.8)         53.4
                                                                 -------------   -------------   ------------  -----------
                                                                      1,761.9            40.7         (10.0)      1,792.6
  Equity securities   . . . . . . . . . . . . . . . . . .               433.2            21.1           (.4)        453.9
 Short-term investments . . . . . . . . . . . . . . . . .               230.8              .5            --         231.3
                                                                 -------------   -------------   ------------  -----------
                                                                    $ 2,735.0     $      82.1     $   (11.9)    $ 2,805.2
                                                                 =============   =============   ============  ===========
1992
 Held-to-maturity:  . . . . . . . . . . . . . . . . . . .
  State and local government obligations  . . . . . . . .           $   250.4     $      21.2     $     (.4)    $   271.2

 Available-for-sale:
  U.S. government obligations   . . . . . . . . . . . . .                56.0              .8           (.1)         56.7
  State and local government obligations  . . . . . . . .               350.8            15.8           (.1)        366.5
  Foreign government obligations  . . . . . . . . . . . .                31.7              .8           (.1)         32.4
  Corporate debt securities   . . . . . . . . . . . . . .                88.4             2.3           (.2)         90.5
  Asset-backed securities   . . . . . . . . . . . . . . .               840.9            11.0           (.7)        851.2
  Other debt securities   . . . . . . . . . . . . . . . .                40.2              .2           (.6)         39.8
                                                                 -------------   -------------   ------------  -----------
                                                                      1,408.0            30.9          (1.8)      1,437.1
  Equity securities   . . . . . . . . . . . . . . . . . .               310.3            93.0          (4.7)        398.6
 Short-term investments . . . . . . . . . . . . . . . . .               300.0              .5            --         300.5
                                                                 -------------   -------------   ------------  -----------
                                                                    $ 2,268.7     $     145.6     $    (6.9)    $ 2,407.4
                                                                 =============   =============   ============  ===========
</TABLE>



The composition of fixed maturities by maturity at December 31, 1993 was:


<TABLE>
<CAPTION>
  (millions)                                                               HELD-TO-MATURITY              AVAILABLE-FOR-SALE

                                                                                       MARKET                         MARKET 
                                                                         COST           VALUE           COST           VALUE 
                                                                      
 <S>                                                                <C>             <C>            <C>             <C>
 Less than one year . . . . . . . . . . . . . . . . . . .           $    42.7       $    43.0      $   464.6       $   477.2
 One to five years  . . . . . . . . . . . . . . . . . . .               213.4           223.1        1,057.5         1,070.0
 Five to ten years  . . . . . . . . . . . . . . . . . . .                24.3            26.1          185.3           188.6
 More than ten years  . . . . . . . . . . . . . . . . . .                28.7            35.2           54.5            56.8
                                                                 -------------   -------------   ------------    ------------
 Total fixed maturities . . . . . . . . . . . . . . . . .           $   309.1       $   327.4      $ 1,761.9       $ 1,792.6
                                                                 =============   =============   ============    ============
<FN>
Securities which do not have a single maturity date are reported at average maturity.
</TABLE>



At December 31, 1993, bonds in the principal amount of $51.9 million were on
 deposit with various regulatory agencies to meet statutory requirements.
As of December 31, 1993 and 1992, the Company had committed $46.0 million in
 uncollateralized lines and letters of credits, of which $0 and $1.7 million,
 respectively, were outstanding and subject to credit risk as of December 31,
 1993 and 1992. In addition, as of December 31, 1993 and 1992, the Company had
 forward and future positions with contract values of $901.2 million and $375.9
 million, respectively, offset by short forward, future or interest rate swap
 positions (market values of $3.5 million and $1.7 million, respectively), and
 unmatched short foreign currency positions as of December 31, 1993 with
 contract values of $80.9 million (market values of $1.9 million); net cash
 requirements are limited to changes in market values which may vary based upon
 changes in interest rates and other factors.

<PAGE>   41
                                                                         40 - 41



3.  REINSURANCE

In 1993, the Company adopted SFAS 113, "Accounting and Reporting for
 Reinsurance of Short-Duration and Long-Duration Contracts."SFAS 113 requires
 amounts related to ceded reinsurance to be shown gross on the financial
 statements. Prior practice allowed ceding enterprises to report insurance
 activities net of the effects of reinsurance. The implementation of SFAS 113
 has resulted in the Company reporting ceded unearned premium reserves as
 "prepaid reinsurance premiums" on the balance sheet and reporting ceded unpaid
 losses and amounts recoverable on paid losses as "reinsurance recoverables."
 The balance sheet has been restated for the prior period. SFAS 113 also
 provides risk transfer criteria and prescribes the accounting and reporting
 standards for reinsurance contracts. The Company reviewed all contracts and
 determined that there was no impact to its results of operations.
Reinsurance contracts do not relieve the Company from its obligations to
 policyholders. Failure of reinsurers to honor their obligations could result
 in losses to the Company. See Management's Discussion and Analysis for further
 discussion. The Company evaluates the financial condition of its reinsurers
 and monitors concentrations of credit risk to minimize its exposure to
 significant losses from reinsurer insolvencies. As of December 31, 1993, 69
 percent of the "prepaid reinsurance premiums" and 75 percent of the
 "reinsurance recoverables" relate to CAIP, for which the Company retains no
 indemnity risk.


The effect of reinsurance on premiums written and earned as of December 31 is
as follows:


<TABLE>
<CAPTION>
    (millions)                                             1993                    1992                    1991

                                                    WRITTEN       EARNED      WRITTEN       EARNED      WRITTEN       EARNED
 <S>                                               <C>          <C>          <C>          <C>          <C>          <C>
 Direct premiums  . . . . . . . . . . . . .        $1,966.4     $1,808.8     $1,636.8     $1,619.4     $1,536.8     $1,486.3
 Assumed  . . . . . . . . . . . . . . . . .             9.2          9.7          4.3          1.9           .1           .2
 Ceded  . . . . . . . . . . . . . . . . . .          (156.4)      (149.8)      (189.9)      (195.2)      (212.3)      (199.6)
                                                 -----------  -----------  -----------  -----------  -----------  ----------- 
 Net premiums   . . . . . . . . . . . . . .        $1,819.2     $1,668.7     $1,451.2     $1,426.1     $1,324.6     $1,286.9
                                                 ===========  ===========  ===========  ===========  ===========  =========== 

<FN>
Losses and loss adjustment expenses are net of reinsurance ceded of $138.8 million in 1993, $196.7 million in 1992 and $155.3 
 million in 1991.
</TABLE>


4.  FEDERAL INCOME TAXES

The provision for Federal income taxes in the accompanying consolidated
 statements of income differs from the statutory rates as follows:


<TABLE>
<CAPTION>
    (millions)                                                 1993                    1992                     1991

 <S>                                               <C>                <C>    <C>                <C>     <C>              <C>
 Income before Federal income taxes   . . .        $   373.1                 $  178.7                   $  32.9
                                                 ===========               ===========               ===========              
 Tax at statutory rate  . . . . . . . . . .        $  130.6           35%    $   60.8           34%     $  11.2           34%
 Tax effect of--
   Exempt interest income . . . . . . . . .           (15.4)          (4)       (12.9)          (7)       (16.5)         (50)
   Dividends received deduction . . . . . .            (4.3)          (1)        (6.4)          (4)        (8.9)         (27)
   Deferred tax asset write-down  . . . . .              --           --           --           --         14.2           43
   Other items, net . . . . . . . . . . . .            (5.1)          (2)        (2.4)          (1)          --           --
                                                 -----------  -----------  -----------  -----------  -----------  ----------- 
                                                   $  105.8           28%    $   39.1           22%     $    --           --%
                                                 ===========  ===========  ===========  ===========  ===========  =========== 
</TABLE>



The current portion of the Federal income tax provision was $90.3 million in
 1993, $8.2 million in 1992 and $20.5 million in 1991. For tax purposes, the
 alternative minimum tax (AMT) credit carryover was $0 and $13.3 million at
 December 31, 1993 and 1992, respectively. Due to strong underwriting earnings
 in the current year, the entire AMT credit carryover was used in 1993.

<PAGE>   42
Deferred Federal income taxes reflect the impact for financial statement
 reporting purposes of "temporary differences" between the financial statement
 carrying amounts and tax bases of assets and liabilities. At December 31, 1993
 and 1992, the components of the net deferred tax asset were as follows:


<TABLE>
<CAPTION>
    (millions)
                                                                                                     1993          1992
 <S>                                                                                            <C>           <C>
 Deferred tax assets:
   Unearned premium reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         $    48.1     $    36.1
   Non-deductible accruals  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              25.4          23.1
   AMT credit carryover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                --          13.3
   Capitalized expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               2.1           4.3
   Loss discounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               5.2           5.3
   Other  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                --           4.5
 Deferred tax liabilities:
   Deferred acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             (43.6)        (34.4)
   Unrealized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             (18.0)        (40.0)
   Other  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              (5.5)           --
                                                                                              ------------  ------------
 Net deferred tax asset   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         $    13.7     $    12.2
                                                                                              ============  ============
</TABLE>



Deferred Federal income taxes include noninterest bearing special estimated tax
 deposits made pursuant to Section 847 of the Internal Revenue Code of $40.5
 million, $36.5 million and $33.7 million at December 31, 1993, 1992 and 1991,
 respectively.
The Omnibus Budget Reconciliation Act of 1993 increased the maximum tax rate
 for corporations from 34 percent to 35 percent, effective for tax years
 beginning after December 31, 1992. As a result of this change in rate, the
 Company was able to write up the value of its deferred tax asset. The effect
 of this write-up was to increase net deferred tax assets which increased net
 income by $2.1 million, or $.03 per share, in 1993.
The $14.2 million write-down of the deferred tax asset in 1991 was required
 under SFAS 96, "Accounting for Income Taxes," because, based on facts at
 December 31, 1991, the Company could not demonstrate absolute assurance that
 the benefit of AMT credit carryover for financial statement purposes would be
 realized in the future. Effective January 1, 1992, the Company adopted SFAS 
 109, "Accounting for Income Taxes," which changed the method of accounting for
 income taxes. Under SFAS 109, the Company was able to demonstrate that the
 benefit of deferred tax assets was fully realizable. The cumulative effect of
 adopting SFAS 109 was to restore deferred tax assets and increased net income
 $14.2 million, or $.20 per share, in 1992.  
As of December 31, 1993, the Company included in "Federal income taxes" $6.4 
 million of foreign tax credit carryover. Of this amount, $1.9 million, $2.8 
 million and $1.7 million will expire at the end of 1996, 1997 and 1998, 
 respectively, unless previously used.


5.    DEBT

During 1993, the maximum amount of bank borrowings outstanding was $170.0
 million, and the daily average amount outstanding was $3.4 million, at an
 average annual interest rate of 5.3 percent.

Funded debt at December 31 consisted of:


<TABLE>
<CAPTION>
    (millions)                                                                                       1993          1992

<S>                                                                                             <C>           <C>
 Revolving credit agreements  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         $      --     $    50.0
 Credit facilities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                --         120.0
 7% Notes   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             148.2            --
 8 3/4% Debentures  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                --          69.7
 8 3/4% Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              28.8          28.6
 10% Notes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             149.3         149.3
 10 1/8% Subordinated Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             149.2         149.1
 Other funded debt  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               1.6           1.8
                                                                                              ------------  ------------
                                                                                                $   477.1     $   568.5
                                                                                              ============  ============
</TABLE>



Funded debt includes amounts the Company has borrowed and contributed to the
 capital of its insurance subsidiaries or borrowed for other long-term
 purposes.
In May 1990, the Company entered into a revolving credit arrangement with
 National City Bank, which is reviewed by the bank annually. Under this
 agreement, the Company had the right to borrow up to $50.0 million. In
 February 1994, the Company reduced this revolving credit arrangement to $20.0
 million. See Note 12-Subsequent Events. By selecting from available credit
 options, the Company may elect to pay interest at rates related

<PAGE>   43
                                                                         42 - 43



 to the London interbank offered rate, the bank's base rate or at a money
 market rate. A commitment fee is payable on any unused portion of the
 committed amount at the rate of .125 percent per annum. At December 31, 1993,
 the Company had no borrowings under this arrangement; at December 31, 1992,
 $50.0 million was outstanding.
In May 1990, the Company also entered into a four-year credit facility with
 Morgan Guaranty Trust Company of New York under which the Company had the
 right to borrow up to $75.0 million. By selecting from available credit
 options, the Company could have elected to pay interest at rates related to
 the London interbank offered rate, the bank's CD rate, a base lending rate or
 a quoted rate. A commitment fee was payable on any unused portion of the
 committed facility at the rate of .15 percent per annum. At December 31, 1993
 and 1992, the Company had no borrowings under this agreement. In February
 1994, the Company terminated this credit facility. See Note 12--Subsequent
 Events.
In October 1989, the Company entered into a five-year credit facility agreement
 with a group of banks under which the Company secured the right to borrow up
 to $235.0 million and request an additional $235.0 million. By selecting from
 available credit options, the Company could have elected to pay interest at
 rates related to the London interbank offered rate or the greater of the agent
 bank's base lending rate or a rate based on the Federal funds' rate. A
 commitment fee was payable on any unused portion of the committed facility at
 the rate of .125 percent per annum. The agreement provided for a utilization
 fee not to exceed .10 percent on the average amount of outstanding borrowings.
 At December 31, 1993, no borrowings were outstanding under this arrangement;
 at December 31, 1992, $120.0 million was outstanding. In February 1994, the
 Company terminated this agreement. See Note 12--Subsequent Events.
In October 1993, the Company sold $150.0 million of noncallable 7% Notes due
 2013 with interest payable semiannually. The fair value of these Notes was
 $145.3 million at December 31, 1993.
In February 1987, the Company sold $100.0 million, $70.0 million after the May
 1989 debt exchange, of 8 3/4% Debentures due 2017 with interest payable
 semiannually. In December 1993, the Company redeemed the entire $70.0 million
 principal amount of these Debentures. The Company redeemed the Debentures at
 105.425 percent of the principal amount, plus accrued interest, with the
 proceeds of the sale of certain securities in its investment portfolios. A
 $4.0 million charge on debt extinguishment was recorded as a "non-recurring
 item." The fair value of this debt was $69.2 million at December 31, 1992.
In May 1989, the Company issued $30.0 million of 8 3/4% Notes due 1999 in
 exchange for $30.0 million of the 8 3/4% Debentures due 2017. These Notes are
 noncallable and interest is payable semiannually. The fair value of these
 Notes was $33.7 million and $31.8 million at December 31, 1993 and 1992,
 respectively.
In December 1988, the Company sold $150.0 million of 10% Notes due 2000 and
 $150.0 million of 10 1/8% Subordinated Notes due 2000.  All such Notes are
 noncallable. Interest is payable semiannually on both issues. The fair values
 of the 10% Notes and 10 1/8% Subordinated Notes were $180.6 million and $181.2
 million, respectively, at December 31, 1993 and $170.4 million and $169.1
 million, respectively, at December 31, 1992.
As of December 31, 1993, the Company is in compliance with its financial debt
 covenants. The most restrictive financial covenant, which appeared under the
 recently terminated credit facilities, provided that senior indebtedness could
 not exceed 200 percent of long-term capital.
In January 1994, the Company sold $200.0 million of its 6.60% Notes due 2004.
 See Note 12--Subsequent Events. 
Aggregate principal payments on funded debt outstanding at December 31, 1993 
 are $.4 million for 1994, 1995 and 1996, $.3 million for 1997, $.1 million for
 1998 and $480.0 million thereafter.

6.   LITIGATION

The Company, or its subsidiaries, are named as defendant in various lawsuits
 generally relating to their business. Numerous legal actions arise from claims
 made under insurance policies issued by the subsidiaries or in connection with
 previous reinsurance agreements. These actions were considered by the Company
 in establishing its loss reserves. The Company believes that the ultimate
 disposition of these and other pending lawsuits will not materially impact the
 Company's operations or financial position.

7.   STATUTORY FINANCIAL INFORMATION

At December 31, 1993, $91.5 million of consolidated statutory policyholders'
 surplus represents net admitted assets of the Company's insurance subsidiaries
 that are not transferable in the form of dividends, loans or advances to the
 Company. Generally, the net admitted assets of insurance subsidiaries
 available for transfer to the Company are restricted by state law and are
 limited to those net admitted assets, as determined in accordance with
 statutory accounting principles, which exceed minimum statutory capital
 requirements.
During 1993, the insurance subsidiaries paid aggregate cash dividends of $131.3
 million, and one subsidiary returned $32.9 million of previously contributed
 capital to the Company. Based on the dividend laws currently in effect, the
 insurance subsidiaries may pay aggregate dividends of $117.1 million in 1994
 without prior approval from regulatory authorities. These limitations may
 change during 1994, which could affect the dividends permitted to be paid
 without prior approval. Statutory policyholders' surplus was $703.6 million
 and $658.3 million at December 31, 1993 and 1992, respectively. Statutory net
 income was $188.6 million, $61.7 million and $76.8 million for the years ended
 December 31, 1993, 1992 and 1991, respectively.

8.   LEASE COMMITMENTS

The Company has operating lease commitments with terms greater than one year
 for equipment and office space, some with options to renew at the end of the
 lease periods. The minimum rental commitments under all such noncancelable
 leases at December 31, 1993 are as follows (in millions): 1994--$20.2;
 1995--$14.5; 1996--$8.8; 1997--$2.6; 1998--$.7; and thereafter--$.1. Total 
 rental expense incurred by the Company for 1993, 1992 and 1991 was $31.3 
 million, $35.4 million and $33.4 million, respectively.

<PAGE>   44
9.   EMPLOYEE BENEFIT PLANS

RETIREMENT PLANS  In 1990, the Company adopted a defined contribution pension
 plan covering employees hired after December 31, 1988, who meet requirements
 as to age and length of service. The Company's funding policy was to
 contribute 1.3 percent of each eligible employee's compensation up to the
 Social Security wage base. Company contributions were $.7 million in 1993, $.5
 million in 1992 and $.3 million in 1991. Effective January 1, 1994, the plan
 was amended to include all employees who meet requirements as to age and
 length of service. Under the amended plan, contributions vary from one percent
 to five percent of compensation up to the Social Security wage base, based on
 years of eligible service.
The Company has a defined benefit pension plan which covered employees hired
 before January 1, 1989 who met requirements as to age and length of service.
 This plan was curtailed on December 31, 1993, and the Company recognized a
 $1.5 million gain. The benefits accruals, based on years of service and the
 employee's career average compensation up to the Social Security tax base,
 were frozen as of December 31, 1993. The Company's funding policy is to
 contribute annually the maximum amount that can be deducted for Federal income
 tax purposes.


The following table sets forth the defined benefit plan information as of
 December 31:


<TABLE>
<CAPTION>
  (millions)                                                                           1993              1992              1991
 <S>                                                                              <C>               <C>              <C>
 Actuarial present value of benefit obligations:
  Vested benefit obligation   . . . . . . . . . . . . . . . . . . . . . .         $    15.8         $     9.2        $      5.5
                                                                                  =========         =========        ==========
  Accumulated benefit obligation  . . . . . . . . . . . . . . . . . . . .         $    16.8         $    12.3        $      8.8
                                                                                  =========         =========        ==========
  Projected benefit obligation for service
   rendered to date . . . . . . . . . . . . . . . . . . . . . . . . . . .         $    16.8         $    16.6        $     12.3
 Plan assets at fair value, primarily government
   and corporate taxable bonds  . . . . . . . . . . . . . . . . . . . . .              17.9              13.6              16.4
 Plan assets net of projected benefit obligation  . . . . . . . . . . . .               1.1              (3.0)              4.1
 Unrecognized actuarial gains   . . . . . . . . . . . . . . . . . . . . .              (1.9)             (3.6)             (8.8)
 Unrecognized prior service cost  . . . . . . . . . . . . . . . . . . . .                --                .7                .8
 Unrecognized transition asset at January 1, 1987,
   recognized over 21 years . . . . . . . . . . . . . . . . . . . . . . .               (.3)              (.3)              (.4)
                                                                                  ---------         ---------        ----------
 Pension liability recognized in the
   consolidated balance sheets  . . . . . . . . . . . . . . . . . . . . .         $    (1.1)        $    (6.2)       $     (4.3)
                                                                                  =========         =========        ==========
 Net pension cost included the following components:
  Service cost-benefits earned during the period  . . . . . . . . . . . .         $     1.9         $     2.5        $      2.1
  Interest cost on projected benefit obligation   . . . . . . . . . . . .               1.2               1.1                .9
  Actual return on plan assets  . . . . . . . . . . . . . . . . . . . . .              (1.2)             (1.3)             (2.2)
  Net amortization and deferral   . . . . . . . . . . . . . . . . . . . .               (.5)              (.4)               .2
                                                                                  ---------         ---------        ----------
  Net periodic pension cost   . . . . . . . . . . . . . . . . . . . . . .         $     1.4         $     1.9        $      1.0
                                                                                  =========         =========        ==========
</TABLE>



The weighted average discount rate used in determining the actuarial present
 value of the projected benefit obligation was 7.0 percent for 1993, 8.0
 percent for 1992 and 9.0 percent for 1991. The expected long-term rate of
 return on assets was 8.0 percent for 1993 and 1992 and 9.0 percent for 1991.
 The rate of increase in future compensation levels was 8.0 percent in 1992 and
 1991.
POSTEMPLOYMENT BENEFITS  The Company provides various postemployment benefits to
 former or inactive employees, their beneficiaries and covered dependents.
 Postemployment benefits include salary continuation and disability-related
 benefits including workers' compensation and continuation of health care
 benefits. In 1993, the Company early adopted SFAS 112, "Accounting for
 Postemployment Benefits," and recognized its obligation of $.9 million at
 December 31, 1993. The Company's policy is to fund annually the maximum amount
 of its obligation that can be deducted for Federal income tax purposes.
POSTRETIREMENT BENEFITS  The Company provides postretirement health and life
 benefits to all employees who met requirements as to age and length of service
 at December 31, 1988. The Company recognized its obligation of $.4 million at
 December 31, 1993 and 1992 and $1.4 million at December 31, 1991. The
 Company's policy is to fund annually the maximum amount of its obligation that
 can be deducted for Federal income tax purposes. Contributions are intended to
 provide not only for benefits attributed to services to date, but also for
 those expected to be earned in the future.
LONG-TERM SAVINGS PLAN  The Company has a Long-Term Savings Plan (LTSP) under
 which the Company matches, into Company stock purchase accounts, a maximum of
 3.0 percent of an employee's eligible salary or wages contributed to the LTSP.
 Company contributions were $3.8 million in 1993, $3.6 million in 1992 and $3.7
 million in 1991.

<PAGE>   45
                                                                         44 - 45



INCENTIVE COMPENSATION PLANS  Under the Company's 1985 Restricted Stock Plan,
 key employees were awarded Common Shares which vested over future employment
 periods. An amount equal to the market value of the shares at the date of
 grant was charged to income over the vesting period. During 1993, the
 remaining 297,419 shares under this plan vested. No awards may be granted
 under this plan after December 31, 1993.
The Company's 1989 Incentive Plan provides for the granting of stock options
 and other stock-based awards to key employees of the Company. The 6,500,000
 Common Shares authorized under the Incentive Plan have been registered.
 Outside of the Incentive Plan, the Company registered 1,425,000 Common Shares
 relating to stock options granted to key employees of the Company. The
 nonqualified stock options granted are for periods up to ten years, become
 exercisable at various dates not earlier than six months after the date of
 grant, and remain exercisable for specified periods thereafter. All options
 were granted at the fair market value at the date of grant.


A summary of all stock option activity (adjusted for the December 1992 3-for-1
 stock split) during the three years ended December 31, follows:


<TABLE>
<CAPTION>
                                           1993                               1992                                1991

                                 NUMBER OF        OPTION PRICES    NUMBER OF        OPTION PRICES    NUMBER OF        OPTION PRICES
OPTIONS OUTSTANDING                 SHARES            PER SHARE       SHARES            PER SHARE       SHARES            PER SHARE
<S>                              <C>          <C>                  <C>          <C>                  <C>          <C>
Beginning of year . . . . . .    4,123,003    $ 7.666 to 19.833    3,301,176    $ 7.666 to 19.833    2,744,976    $ 7.666 to 18.291
 Add (deduct):                                                                                                   
 Granted  . . . . . . . . . .      693,325     29.625              1,581,750     15.458 to 18.833      767,100     14.458 to 20.208
 Exercised  . . . . . . . . .      (96,443)     9.250 to 19.666     (531,497)     7.666 to 18.291           --                   --
 Cancelled  . . . . . . . . .     (230,998)     9.125 to 29.625     (228,426)     9.125 to 19.375     (210,900)     9.250 to 20.208
                                -----------  -------------------  -----------  -------------------  -----------  -------------------
End of year . . . . . . . . .    4,488,887    $ 7.666 to 29.625    4,123,003    $ 7.666 to 19.833    3,301,176    $ 7.666 to 19.833
                                ===========  ===================  ===========  ===================  ===========  ===================
Exercisable, end of year. . .      934,592    $ 7.666 to 19.833      759,238    $ 7.666 to 19.666      788,997    $ 7.666 to 18.291
                                ===========  ===================  ===========  ===================  ===========  ===================
Available, end of year. . . .    2,808,173                         1,270,500                         2,623,824
                                ===========                       ===========                       =========== 
</TABLE>
                       

The amounts charged to income for incentive compensation plans, including a
 cash bonus program for key members of management and a gainsharing payment to
 all other employees, were $24.7 million in 1993, $12.0 million in 1992 and
 $4.7 million in 1991.

10.  RELATED PARTY TRANSACTIONS

In April 1988, the Company sold to Alfred Lerner, then Chairman of the
 Company's Board of Directors, a $75.0 million Floating Rate Convertible
 Subordinated Debenture due 2008 (convertible debenture). On December 16, 1992,
 the convertible debenture was converted into 9,000,000 Common Shares. On the
 same date, Mr. Lerner sold, in an underwritten public offering, 5,175,000 of
 the Common Shares received upon such conversion. In 1993, Mr. Lerner sold the
 remaining 3,825,000 shares. The public offering was completed pursuant to the
 terms of the registration rights provisions of the convertible debenture,
 under which the Company paid $5.1 million in underwriting and other expenses
 of the offering, which were charged directly to shareholders' equity. In
 addition, Mr. Lerner ended his employment agreement with the Company, and the
 Company paid him $10.0 million. Prior to the conversion, the Company incurred
 interest expense on the convertible debenture of $4.5 million in 1992 and $6.5
 million in 1991.
As of June 30, 1992, the Company exercised its right to terminate the
 Investment Management Agreement with Progressive Partners Limited Partnership
 (Progressive Partners) as part of its strategy to compete more effectively by
 lowering costs. Mr. Lerner had a 50 percent interest in Progressive Partners.
 Upon such termination, the Company paid Progressive Partners a one-time
 termination fee, and an additional incentive fee for the period ended June 30,
 1992, in the aggregate amount of $54.6 million, determined according to a
 formula contained in the Investment Management Agreement. Progressive
 Partners' investment staff became employed by a wholly-owned subsidiary of the
 Company and continues to provide the Company with investment and capital
 management services.  Prior to the termination of the Agreement, the Company
 incurred investment management service fees to Progressive Partners of $10.5
 million for 1992 and $19.1 million for 1991.
In January 1991, the Company purchased 4,851,000 shares (adjusted for the
 2-for-1 stock split paid February 12, 1993), or 4.9 percent, of MBNA
 Corporation in connection with its initial public offering. At the time of the
 transaction, Mr. Lerner was Chairman of the Board and Chief Executive Officer
 of MBNA Corporation and owned 10 percent of its common stock. During 1993, the
 Company sold its entire holding of MBNA Corporation, recognizing realized
 gains of $74.3 million.

<PAGE>   46
                                                                         46 - 47



11.  SEGMENT INFORMATION

The operating segments of the Company and subsidiaries are classified into
 Insurance and Service. Expense allocations are based on assumptions and
 estimates; stated segment operating results would change if different methods
 were applied. The Company does not allocate assets to segments.


<TABLE>
For the years ended December 31,
<CAPTION>
    (millions)                                  1993                          1992                          1991

                                                        PRETAX                         PRETAX                         PRETAX
                                       REVENUES   PROFIT (LOSS)      REVENUES    PROFIT (LOSS)      REVENUES    PROFIT (LOSS)
 <S>                                  <C>           <C>             <C>             <C>            <C>             <C>
 Insurance operations . . .           $ 1,668.7     $   177 .8      $ 1,426.1       $    49.6      $ 1,286.9       $   (46.9)
 Service operations   . . .                43.7           6 .8           53.3            (4.3)          54.0            (2.1)
                                   -------------  -------------   ------------    ------------   ------------    ------------ 
   Total operations . . . .             1,712.4         184 .6        1,479.4            45.3        1,340.9           (49.0)
 Proposition 103
    reserve reduction . . .                  --             --          106.0           106.0             --              --
 Investment income  . . . .               242.4         242 .4          153.5           153.5          152.2           152.2
 Interest expense and
    other costs   . . . . .                  --          (53.9)            --          (126.1)            --           (70.3)
                                   -------------  -------------   ------------    ------------   ------------    ------------ 
   Total  . . . . . . . . .           $ 1,954.8     $   373 .1      $ 1,738.9       $   178.7      $ 1,493.1       $    32.9
                                   =============  =============   ============    ============   ============    ============ 
</TABLE>


12.  SUBSEQUENT EVENTS

On January 12, 1994, the Company sold $200.0 million of its 6.60% Notes due
 2004 in an underwritten public offering. The Notes were priced to yield 6.62
 percent. The Notes are noncallable, and interest is payable semiannually.
Effective February 1, 1994, the Company cancelled its $75.0 million credit
 facility with Morgan Guaranty Trust Company of New York and reduced its
 revolving credit arrangement with National City Bank to $20.0 million from
 $50.0 million. Effective February 10, 1994, the Company cancelled the
 remaining $185.0 million under the credit facility agreement with a group of
 banks. Since the first half of 1993, the Company raised over $500 million
 through the sale of its debt and equity securities in the public market and,
 therefore, is not currently in need of these credit facilities.

<PAGE>   47
M
ANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The consolidated financial statements and the related notes on pages 34 through
  46, together with the supplemental information on pages 50 through 55, should
  be read in conjunction with the following discussion of our consolidated
  financial condition and results of operations.

FINANCIAL CONDITION The Progressive Corporation is a holding company and does
  not have any revenue producing operations of its own. It receives cash
  through borrowings, equity sales, subsidiary dividends and other
  transactions, and may use the proceeds to contribute to the capital of its
  insurance subsidiaries in order to support premium growth, to repurchase its
  Common Shares and other outstanding securities, to redeem debt, and for other
  business purposes. In 1993, the Company sold 4,950,000 Common Shares for net
  proceeds of $177.0 million, $150.0 million of its 7% Notes due 2013 and filed
  a shelf registration for $200.0 million of its debt securities (in January
  1994, the Company sold $200.0 million of its 6.60% Notes due 2004 under the
  shelf registration statement). During 1993, the Company repurchased .4
  million of its Serial Preferred Shares, Series A, for a cost of $9.8 million,
  repaid $170.0 million borrowed under its credit facilities and redeemed the
  entire $70.0 million of its 8 1/4 % Debentures.
During the three-year period ended December 31, 1993, the Company also sold
  4,000,000 Serial Preferred Shares, Series A, for net proceeds of $96.4
  million, repurchased 4.4 million Common and Serial Preferred Shares at a
  total cost of $225.4 million, and decreased its aggregate borrowings $167.3
  million. During the same period, The Progressive Corporation received $393.3
  million from its insurance subsidiaries, net of capital contributions made to
  these subsidiaries. The regulatory restrictions on subsidiary dividends are
  described in Note 7 to the financial statements.
The Company has substantial capital resources and is unaware of any trends,
  events or circumstances that are reasonably likely to affect its capital
  resources in a material way. The Company also has available a $20.0 million
  revolving credit agreement. The Company believes it has sufficient borrowing
  capacity and other capital resources to support current and anticipated
  growth.
The Company's insurance operations create liquidity by collecting and investing
  premiums written from new and renewal business in advance of paying claims.
  For the three years ended December 31, 1993, operations generated a positive
  cash flow of $664.7 million, and cash flow is expected to be positive in both
  the short-term and reasonably foreseeable future. The Company's substantial
  investment portfolio is highly liquid, consisting almost entirely of readily
  marketable securities. The Company does not expect any material changes in
  its cash requirements and is not aware of any trends, events or uncertainties
  that are reasonably likely to have a material effect on its liquidity.
Total capital expenditures for the three years ended December 31, 1993,
  aggregated $122.6 million. In spring 1992, construction began on the
  Company's new corporate office complex in Mayfield Village, Ohio, and in
  December 1993, the Company began occupying a portion of this complex.
  Construction is expected to be completed in 1994. The new facility will
  consist of approximately 520,000 square feet of space and will replace office
  space held under expiring leases in a number of locations in the Cleveland
  area. The cost of the project is currently estimated at $74.8 million, and is
  being funded through operating cash flows. As of December 31, 1993, $50.5
  million of the project's cost had been paid.
In June 1992, the Company reached an agreement with the California Department
  of Insurance to refund approximately $50 million of premiums (including
  interest) on business written between November 8, 1988 and November 7, 1989
  to approximately 260,000 policyholders, thereby settling all rollback and
  refund exposure since Proposition 103 was adopted in November 1988. As a
  result, the Proposition 103 premium refund and rollback reserve was reduced
  by $106.0 million.
During the second quarter 1992, the Company changed its financial arrangement
  with Progressive Partners Limited Partnership (Progressive Partners), its
  investment manager, as part of its strategy to compete more effectively for
  private passenger auto insurance by lowering costs. Under the new
  arrangement, Progressive Partners' people, now employed by a wholly-owned
  Progressive subsidiary, continue to provide the Company with investment and
  capital management. The transaction involved paying Progressive Partners a
  one-time fee for terminating the investment management contract, and an
  additional incentive fee for the period ended June 30, 1992, in the aggregate
  amount of $54.6 million. This transaction reduced the Company's costs for
  investment and capital management.
In December 1992, Mr. Alfred Lerner, then Chairman of the Company, converted
  his $75.0 million Floating Rate Convertible Subordinated Debenture due 2008
  into 9,000,000 Common Shares and sold 5,175,000 of those Common Shares in an
  underwritten public offering. The public offering was completed pursuant to
  the registration rights provisions of the convertible debenture, under which
  the Company paid $5.1 million in underwriting and other expenses of the
  offering. These expenses were charged directly to shareholders' equity in
  accordance with generally accepted accounting principles. On the

<PAGE>   48
  same date, Mr. Lerner agreed to a termination of his employment agreement
  with the Company, and, in connection with these transactions, the Company
  paid Mr. Lerner $10.0 million.
The Company invests in fixed maturity, short-term and equity securities. The
  Company's investment strategy recognizes its need to maintain capital
  adequate to support its insurance operations. Therefore, the Company
  evaluates the risk/reward trade-offs of investment opportunities, measuring
  their effects on stability, diversity, overall quality and liquidity of the
  investment portfolio. The majority of the portfolio at December 31, 1993, was
  in short-term and intermediate-term, investment-grade fixed-income
  securities. Fixed maturity securities which are held-to-maturity and
  short-term securities are reported at amortized cost; amortized cost of
  short-term securities approximates market. Available-for-sale securities are
  held for indefinite periods of time and include fixed maturities and equity
  securities. The available-for-sale securities are reported at market value
  with the changes in market value, net of deferred income taxes, reported
  directly in shareholders' equity as unrealized appreciation or depreciation.
  As of December 31, 1993, the mark-to-market net gains in the Company's
  available-for-sale portfolio were $51.4 million ($33.5 million, net of
  deferred income taxes), compared to $117.4 million ($77.5 million, net of
  taxes). The weighted average fully taxable equivalent yield of the portfolio
  was 8.7 percent, 8.6 percent and 9.4 percent as of December 31, 1993, 1992
  and 1991, respectively. (See Note 2--Investments, for a more detailed
  breakdown of the investment portfolio.)
As of December 31, 1993, the Company held $122.5 million of Collateralized
  Mortgage Obligations (CMOs), compared to $189.8 million last year. CMOs held
  by the Company are highly liquid with readily available quotes, and, at
  December 31, 1993, have an average life of 1.6 years. Eighty-nine percent of
  the CMOs held by the Company are rated AAA by Moody's and Standard & Poor's.
  As of December 31, 1993, the Company's total CMO portfolio had an unrealized
  loss of $3.7 million, compared to an unrealized gain of $.5 million last
  year.
Investments in the Company's portfolio have varying degrees of risk. Equity
  securities generally have greater risks than the non-equity portion of the
  portfolio since these securities are subordinate to the rights of debt
  holders and other creditors of the issuer. As of December 31, 1993, the
  mark-to-market net gains in the Company's equity portfolio were $20.7 million
  ($13.5 million, net of taxes), compared to $88.3 million ($58.3 million, net
  of taxes). The Company continually evaluates the creditworthiness of each
  issuer for all securities held in its portfolio. Changes in market value are
  evaluated to determine the extent to which such changes are attributable to:
  (i) interest rates, (ii) market-related factors other than interest rates,
  and (iii) financial conditions, business prospects and other fundamental
  factors specific to the issuer. It is the Company's general policy to dispose
  of securities when the Company determines that the issuer is unable to
  reverse its deteriorating financial condition and the prospects for its
  business within a reasonable period of time. In less severe circumstances,
  the Company may decide to dispose of a portion of its holdings in a specific
  issuer when the risk profile of the investment becomes greater than its
  tolerance for such risk.

RESULTS OF OPERATIONS Direct premiums written increased 20 percent to $1,966.4
  million in 1993, compared to $1,636.8 million in 1992 and $1,536.8 million in
  1991. These amounts include premiums written under state-mandated involuntary
  Commercial Auto Insurance Plans (CAIP), for which the Company retains no
  indemnity risk, of $98.0 million in 1993, $142.2 million in 1992 and $180.0
  million in 1991. The Company provides policy and claim processing services to
  28 state CAIPs, compared to 26 in 1992 and 25 in 1991; the size of the CAIP
  market continues to decrease. Net premiums written increased 25 percent to
  $1,819.2 million, compared to $1,451.2 million in 1992 and $1,324.6 million
  in 1991. Premiums earned, which are a function of the amount of premiums
  written in the current and prior periods, increased 17 percent in 1993,
  compared to 11 percent in 1992 and 8 percent in 1991. In 1989, the Company
  established a reserve for potential premium rollbacks and refunds under
  provisions of Proposition 103 and added to the reserve in subsequent years;
  the reserve reduced premiums written and earned $10.2 million and $49.7
  million in 1992 and 1991, respectively. In 1992, the Company settled its
  financial responsibility under California Proposition 103 and reduced its
  reserve as described above.
In 1993, the Company's Core business' net premiums written grew 25 percent,
  driven by an increase in unit sales. The Company anticipates continued growth
  in its Core business in 1994; however, it has begun to price so underwriting
  margins move down to four percent. As a result, in the short run, operating
  earnings may not increase in proportion to volume growth.
Claim costs, the Company's most significant expense, represent actual payments
  made and changes in estimated future payments to be made to or on behalf of
  its policyholders, including expenses required to settle claims and losses.
  These costs include a loss estimate for future assignments and assessments,
  based on current business, under state-mandated involuntary automobile
  programs.  Claims costs are influenced by inflation and loss severity and
  frequency, the impact of which is mitigated by adequate pricing.  Increases
  in the rate of inflation increase loss payments which are made after premiums
  are collected. Accordingly, anticipated rates of inflation are taken into
  account when the Company establishes premium rates and loss reserves. Claim
  costs, expressed as a percentage of premiums earned, were 62 percent in 1993,
  compared to 65 percent in 1992 and 67 percent in 1991. The personnel
  reductions in late 1991 and early 1992, along with other cost-cutting
  measures and the favorable run-off of the Transportation business, reduced
  the Company's losses and loss adjustment expenses.
Policy acquisition and other underwriting expenses as a percentage of premiums
  earned were 28 percent in 1993, compared to 31 percent in 1992 and 37 percent
  in 1991. The decrease re-

<PAGE>   49
  flects the cost-cutting measures discussed above, as well as process 
  improvements, changed workflows and lower commission programs.
Service revenues were $43.7 million in 1993, compared to $53.3 million in 1992
  and $54.0 million in 1991; the decrease in revenues is in conjunction with
  the decrease in CAIP premiums written. Service businesses generated a pretax
  operating profit of $6.8 million in 1993, compared to a pretax loss of $4.3
  million in 1992 and a pretax loss of $2.1 million in 1991. During 1992, we
  increased loss adjustment expense reserves $6.2 million.
Recurring investment income (interest and dividends) decreased 3 percent to
  $134.5 million in 1993, 4 percent to $139.0 million in 1992 and 5 percent to
  $144.8 million in 1991, primarily due to lower prevailing interest rates. Net
  realized gains on security sales were $107.9 million in 1993, $14.5 million
  in 1992 and $7.4 million in 1991. A significant portion of the 1993 realized
  gains resulted from the sale of certain equity securities held in the
  Company's investment portfolio.
President Clinton signed the Omnibus Budget Reconciliation Act of 1993, which,
  among other items, increased the statutory tax rate to 35 percent. Effective
  January 1, 1992, the Company adopted SFAS 109 and was able to demonstrate
  that the benefit of deferred tax assets was fully realizable. The cumulative
  effect of adopting SFAS 109 increased net income $14.2 million, or $.20 per
  share.  In 1991, the deferred tax asset write-down, as required under SFAS
  96, was included in the Federal income tax provision.

ENVIRONMENTAL AND PRODUCT LIABILITY EXPOSURES  Because the Company has been
  primarily an insurer of motor vehicles, it has limited exposure for
  environmental, product and general liability claims. The Company has
  established reserves for these exposures, in amounts which it believes to be
  adequate based on information currently known by it and, in addition, has a
  supplemental reserve that is in an amount substantially in excess of the
  potential exposure for such claims. The Company does not believe that these
  claims will have a material impact on the Company's liquidity, results of
  operations or financial condition.
However, the ultimate costs of the environmental and product liability claims
  are inherently difficult to project due to numerous uncertainties, including
  causation and policy coverage issues, the possible uncollectability of
  related reinsurance and third party indemnity arrangements, unsettled and
  sometimes conflicting case law, difficulties in determining the scope of any
  contamination or injury and the nature and cost of the appropriate remedial
  action and the number and financial condition of responsible parties and
  their insurers, among other factors.
Most of the Company's exposure for such claims results from Progressive's
  acquisition in 1985 of American Star Insurance Company, since renamed
  National Continental Insurance Company. When American Star was acquired, the
  seller agreed to administer all claims asserted under policies previously
  written by American Star and to pay all losses incurred under such policies,
  including those covered by reinsurance then in place on some of the policies.
  The seller encountered major financial difficulties as a result of losses in
  Hurricane Andrew and, despite having paid all losses and adjusted all claims
  on the old business since 1985, has contested its obligation to administer
  these claims and to pay the losses not being paid by some of the reinsurers.
  The dispute has been submitted to arbitration and is scheduled to be heard by
  an arbitration panel during the second quarter. If it is determined that the
  seller is responsible for all of these losses, the amounts could be material
  to it. According to a recent study by independent actuaries for the seller,
  aggregate reserves on this business are about $19.2 million. Of that amount,
  about $6.3 million is being contested in the arbitration, $7.8 million is the
  admitted obligation of the seller and the balance is the responsibility of
  reinsurance sources that are paying their obligations.
The Company will continue to monitor these exposures, adjust the related
  reserves appropriately as additional information becomes known and disclose
  any material developments.

<PAGE>   50

<TABLE>
TEN           YEAR           SUMMARY     --      FINANCIAL           HIGHLIGHTS

<CAPTION>

Not covered by report of independent accountants

                                                                   (millions-except per share amounts and number of people employed)


                                                                                                   1993           1992
<S>                                                                                            <C>             <C>
INSURANCE COMPANIES' SELECTED FINANCIAL INFORMATION
   AND OPERATING STATISTICS-STATUTORY BASIS

 Reserves:
   Loss and loss adjustment expense . . . . . . . . . . . . . . . . . . . . . . . . .          $1,053.7        $  994.7
   Unearned premiums  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             688.9           538.5

 Policyholders' surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             703.6           658.3

 Ratios:
   Net premiums written to policyholders' surplus   . . . . . . . . . . . . . . . . .               2.6             2.2

   Loss and loss adjustment expense reserves to policyholders' surplus  . . . . . . .               1.5             1.5

   Loss and loss adjustment expense . . . . . . . . . . . . . . . . . . . . . . . . .              62.6            68.3
   Underwriting expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              25.4            29.8 
                                                                                               ---------       ---------
   Statutory combined ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              88.0            98.1


SELECTED CONSOLIDATED FINANCIAL INFORMATION-GAAP BASIS

 Total revenues   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          $1,954.8        $1,738.9

 Total assets1  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           4,011.3         3,440.9

 Total shareholders' equity   . . . . . . . . . . . . . . . . . . . . . . . . . . . .             997.9           629.0

 Common Shares outstanding  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              72.1            67.1

 Book value per Common Share  . . . . . . . . . . . . . . . . . . . . . . . . . . . .          $  12.62        $   7.94

 Return on average shareholders' equity2  . . . . . . . . . . . . . . . . . . . . . .              36.0%           34.7%

 Funded debt outstanding  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          $  477.1        $  568.5

 Ratio of funded debt to capital  . . . . . . . . . . . . . . . . . . . . . . . . . .                32%             47%

 GAAP underwriting margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              10.7             3.5

 Number of people employed  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             6,101           5,591


<FN>
1 Pursuant to SFAS 113, amounts for 1990 through 1992 were restated. (See Note 3--Reinsurance)

2 Net income minus preferred share dividends divided by average common shareholders' equity.

  All share and per share amounts were adjusted for stock splits.
</TABLE>






The Progressive Corporation and Subsidiaries
                                                50

<PAGE>   51

<TABLE>


<CAPTION>






         1991           1990           1989           1988           1987           1986           1985           1984
    <S>            <C>            <C>            <C>            <C>            <C>             <C>             <C>




    $   901.7      $   827.4      $   787.7      $   685.5      $   496.1      $   342.0       $  226.6        $ 153.3
        513.6          474.1          467.6          505.0          446.8          323.9          219.4          141.1

        676.7          636.7          578.1          495.0          452.0          312.0          230.1          118.9


          2.0            1.9            2.0            2.6            2.5            2.5            2.3            2.6

          1.3            1.3            1.4            1.4            1.1            1.1            1.0            1.3

         65.7           62.1           65.9           62.9           58.3           61.0           65.6           65.0
         33.5           31.1           31.4           33.2           35.8           34.3           33.6           37.4
    ----------     ----------     ----------     ----------     ----------     ----------      ---------       --------
         99.2           93.2           97.3           96.1           94.1           95.3           99.2          102.4




    $ 1,493.1      $ 1,376.2      $ 1,392.7      $ 1,355.8      $ 1,066.2      $   749.4       $  507.1        $ 303.3

      3,317.2        2,912.4        2,643.7        2,316.3        1,782.5        1,259.2          810.8          538.1

        465.7          408.5          435.2          417.2          395.0          311.4          118.4           74.8

         63.3           69.3           76.2           80.7           86.1           84.0           65.1           65.1

    $    5.83      $    5.89      $    5.71      $    5.17      $    4.59      $    3.71       $   1.82        $  1.15

          6.7%          21.5%          17.4%          25.9%          24.7%          26.9%          36.9%          18.0%

    $   644.0      $   644.4      $   645.9      $   479.2      $   216.9      $   100.8       $  158.7        $ 102.4

           58%            61%            60%            53%            35%            24%            57%            58%

         (3.7)           1.0           (1.2)           2.9            5.6            4.3            0.0           (2.4)

        6,918          6,370          6,049          5,854          5,879          4,711          3,266          2,243

</TABLE>














                                                51

<PAGE>   52

<TABLE>
TEN     YEAR     SUMMARY    --    GAAP     CONSOLIDATED     OPERATING    RESULTS

<CAPTION>

Not covered by report of independent accountants


                                                                                    (millions-except per share amounts)

                                                                                                   1993           1992
<S>                                                                                            <C>            <C>
Direct premiums written:
 Personal lines   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          $1,548.9       $1,214.6
 Commercial lines   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             417.5          422.2
                                                                                              ----------     ----------
Total direct premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . .           1,966.4        1,636.8
 Reinsurance assumed  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               9.2            4.3
 Reinsurance ceded  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            (156.4)        (189.9)
                                                                                              ----------     ----------
Net premiums written  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           1,819.2        1,451.2
 Net change in unearned premiums reserve1   . . . . . . . . . . . . . . . . . . . . .            (150.5)         (25.1)
                                                                                              ----------     ----------
Premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           1,668.7        1,426.1
                                                                                              ----------     ----------
Expenses:
 Losses and loss adjustment expenses  . . . . . . . . . . . . . . . . . . . . . . . .           1,028.0          930.9
 Policy acquisition costs   . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             311.6          304.1
 Other underwriting expenses  . . . . . . . . . . . . . . . . . . . . . . . . . . . .             151.3          141.5
                                                                                              ----------     ----------
Total underwriting expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           1,490.9        1,376.5
                                                                                              ----------     ----------
Underwriting profit (loss) before taxes . . . . . . . . . . . . . . . . . . . . . . .             177.8           49.6
Provision (benefit) for Federal income taxes  . . . . . . . . . . . . . . . . . . . .              62.2           16.9
                                                                                              ----------     ----------
Underwriting profit (loss) after taxes  . . . . . . . . . . . . . . . . . . . . . . .             115.6           32.7
Service operations profit (loss) after taxes  . . . . . . . . . . . . . . . . . . . .               4.4           (2.8)
                                                                                              ----------     ----------
                                                                                                  120.0           29.9
Investment income after taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .             107.1          110.4
Net realized gains (losses) on security sales after taxes . . . . . . . . . . . . . .              70.1            9.6
Interest expense after taxes  . . . . . . . . . . . . . . . . . . . . . . . . . . . .             (25.8)         (29.4)
Proposition 103 reserve reduction after taxes . . . . . . . . . . . . . . . . . . . .                --           70.0
Non-recurring items after taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .              (2.6)         (42.6)
Other income (expense) after taxes 2  . . . . . . . . . . . . . . . . . . . . . . . .              (1.5)          (8.3)
                                                                                              ----------     ----------
Income before Federal tax adjustments
   and cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . .             267.3          139.6
Federal tax adjustments 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                --             --
Cumulative effect of accounting change 4  . . . . . . . . . . . . . . . . . . . . . .                --           14.2
                                                                                              ----------     ----------
Net income  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          $  267.3       $  153.8
                                                                                              ==========     ==========
Per share
 Net income   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          $   3.58       $   2.05
 Dividends  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              .200           .191
Average equivalent shares
 Primary  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              71.8           62.3
 Fully diluted  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              72.0           71.9
Common Share Price Range
 High   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          $ 46 1/8       $ 29 3/8
 Low  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            26 5/8         14 3/4


<FN>
1 Amount represents change in unearned premiums reserve less change in prepaid reinsurance premiums.

2 Reflects investment expenses after taxes and other tax adjustments.

3 1991 reflects a deferred tax asset write-down; 1990 reflects a fresh start tax benefit; and 1985 reflects benefits from capital
  loss carry forwards.

4 1992 reflects adoption of SFAS 109, "Accounting for Income Taxes," and 1987 reflects adoption of SFAS 96, "Accounting for Income
  Taxes."

  All share and per share amounts were adjusted for stock splits.
</TABLE>






The Progressive Corporation and Subsidiaries

<PAGE>   53
                                                                         52 - 53




<TABLE>
<CAPTION>
         1991           1990           1989           1988           1987           1986           1985           1984
    <S>            <C>            <C>            <C>            <C>             <C>            <C>            <C>

    $ 1,047.4      $   876.0      $   800.1      $   817.0      $   690.2       $  526.2       $  396.4       $  264.1
        489.4          482.8          487.0          521.0          488.0          303.9          145.0           47.1
   -----------    -----------    -----------    -----------    -----------     ----------     ----------     ----------
      1,536.8        1,358.8        1,287.1        1,338.0        1,178.2          830.1          541.4          311.2
           .1             .1            7.2            9.4           19.5            9.2            1.6             .1
       (212.3)        (162.6)        (134.0)         (72.4)         (81.2)         (58.4)         (20.1)          (2.8)
   -----------    -----------    -----------    -----------    -----------     ----------     ----------     ----------
      1,324.6        1,196.3        1,160.3        1,275.0        1,116.5          780.9          522.9          308.5
        (37.7)          (5.1)          36.2          (59.6)        (122.1)        (103.7)         (78.1)         (35.0)
   -----------    -----------    -----------    -----------    -----------     ----------     ----------     ----------
      1,286.9        1,191.2        1,196.5        1,215.4          994.4          677.2          444.8          273.5
   -----------    -----------    -----------    -----------    -----------     ----------     ----------     ----------

        858.0          762.9          799.3          752.0          571.9          406.6          288.4          176.2
        313.7          292.7          296.7          321.3          292.6          190.2          130.1           82.5
        162.1          123.7          114.9          106.6           74.4           51.8           26.4           21.4
   -----------    -----------    -----------    -----------    -----------     ----------     ----------     ----------
      1,333.8        1,179.3        1,210.9        1,179.9          938.9          648.6          444.9          280.1
   -----------    -----------    -----------    -----------    -----------     ----------     ----------     ----------
        (46.9)          11.9          (14.4)          35.5           55.5           28.6            (.1)          (6.6)
        (15.9)           4.0           (2.9)          10.0           12.2           13.1            (.7)          (3.8)
   -----------    -----------    -----------    -----------    -----------     ----------     ----------     ----------
        (31.0)           7.9          (11.5)          25.5           43.3           15.5             .6           (2.8)
         (1.4)           2.8            2.5           (1.3)          (1.0)            --             --             --
   -----------    -----------    -----------    -----------    -----------     ----------     ----------     ----------
        (32.4)          10.7           (9.0)          24.2           42.3           15.5             .6           (2.8)
        121.1          126.4          135.3           91.3           59.3           49.4           35.9           20.9
          4.9           (8.4)           (.4)          12.3           (1.9)           5.1            5.4           (2.3)
        (31.6)         (32.0)         (32.5)         (10.5)          (6.5)          (3.3)          (4.8)          (3.3)
           --             --             --             --             --             --             --             -- 
           --             --             --             --             --             --             --             --
        (14.9)         (13.2)         (15.4)          (9.2)          (3.4)          (2.0)          (1.7)           1.4
   -----------    -----------    -----------    -----------    -----------     ----------     ----------     ----------

         47.1           83.5           78.0          108.1           89.8           64.7           35.4           13.9
        (14.2)           9.9             --             --             --             --             .2             --
           --             --             --             --            3.7             --             --             --
   -----------    -----------    -----------    -----------    -----------     ----------     ----------     ----------
    $    32.9      $    93.4      $    78.0      $   108.1      $    93.5       $   64.7       $   35.6       $   13.9
   ===========    ===========    ===========    ===========    ===========     ==========     ==========     ==========

    $     .41      $    1.19      $     .94      $    1.23      $    1.08       $    .77       $    .52       $    .21
         .172           .160           .147           .133           .077           .019           .017           .016

         66.6           72.9           79.8           84.0           86.7           85.5           70.5           65.1
         75.6           82.5           89.1           90.9           86.7           85.5           70.5           65.1

    $  20 5/8      $  18 3/4      $  14 1/2      $  10 3/4      $  11 7/8       $ 12 7/8       $  7           $  3 3/4
       15             11              7 1/2          7 1/4          8 1/2          6 3/4          3 3/8          3
</TABLE>


<PAGE>   54
                                                                         54 - 55


<TABLE>
LOSS                            RESERVES                                

<CAPTION>
Not covered by report of independent accountants
                                                                                               GAAP COMBINED RATIO

                                                                                                           ADJUSTED TO
                                        YEAR-END           CURRENT            % YEAR-END                       REFLECT
                                         RESERVE          ESTIMATE        RESERVE AMOUNT                          LOSS
                                          AMOUNT1         OF TOTAL             UNPAID AT           AS          RESERVE
YEAR                                  (MILLIONS)        REDUNDANCY2    DECEMBER 31, 1993     REPORTED      DEVELOPMENT
<S>                                       <C>                   <C>                  <C>        <C>              <C>
1993  . . . . . . . . . . . . .           $1,349                NA                   100%        89.3               NA
1992  . . . . . . . . . . . . .            1,274                6%                    52         96.5             96.4
1991  . . . . . . . . . . . . .            1,077                 7                    29        103.7            104.4
1990  . . . . . . . . . . . . .              858                 8                    18         99.0             99.1
1989  . . . . . . . . . . . . .              750                 9                    13        101.2             99.7
1988  . . . . . . . . . . . . .              654                 7                     6         97.1             99.0
1987  . . . . . . . . . . . . .              475                15                     3         94.4             93.0


<FN>
The chart represents what the underwriting results for prior years would have been if year-end reserves were as subsequent payments
and current reserves now suggest. For example, the 96.5 GAAP combined ratio as reported for 1992 was negatively impacted 0.1 points
because reserve redundancy which existed at December 31, 1991 increased by $1.8 million during 1992.

1 Pursuant to SFAS 113, amounts for 1990 through 1992 were restated. (See Note 3-Reinsurance.)

2 The percentage will change as claims unpaid at December 31, 1993 are ultimately settled or the reserves adjusted.

NA = Not applicable
</TABLE>




<TABLE>
DIRECT                           PREMIUMS                                WRITTEN
<CAPTION>
Not covered by report of independent accountants
                                                                                                                          (millions)

                          1993                   1992                     1991                     1990                  1989
<S>             <C>           <C>       <C>           <C>        <C>            <C>       <C>           <C>      <C>          <C>
Florida         $   265.6      13.5%    $  195.3       11.9%     $  173.9        11.3%    $  169.3       12.5%   $  160.4      12.5%
Ohio                175.9       8.9        140.7        8.6         137.1         8.9        116.8        8.6        92.9       7.2
New York            170.4       8.7        156.8        9.6         132.1         8.6        105.2        7.7        79.9       6.2
Texas               146.6       7.4        117.0        7.2          96.2         6.3         64.4        4.7        46.9       3.7
Georgia             120.0       6.1        114.6        7.0         122.9         8.0        106.4        7.8        93.3       7.2
Pennsylvania        113.0       5.8         70.1        4.3          52.8         3.4         53.0        3.9        43.8       3.4
California           80.2       4.1         90.6        5.5         156.1        10.2        177.8       13.1       262.5      20.4
All Other           894.7      45.5        751.7       45.9         665.7        43.3        565.9       41.7       507.4      39.4
                ---------     -----     --------      -----      --------       -----     --------      -----    --------     -----
 Total          $ 1,966.4     100.0%    $1,636.8      100.0%     $1,536.8       100.0%    $1,358.8      100.0%   $1,287.1     100.0%
                =========     =====     ========      =====      ========       =====     ========      =====    ========     =====
</TABLE>



The Progressive Corporation and Subsidiaries

<PAGE>   55

<TABLE>
QUARTERLY       FINANCIAL         AND          COMMON        SHARE          DATA

<CAPTION>
Not covered by report of independent accountants

                                                                                                (millions--except per share amounts)

                                        NET INCOME          OPERATING INCOME2

                        OPERATING                   PER                    PER          HIGH-LOW       DIVIDENDS    STOCK PRICE
YEAR          QUARTER    REVENUES      TOTAL     SHARE1      TOTAL3      SHARE1           PRICE4       PER SHARE   APPRECIATION5
<S>                 <C>   <C>         <C>         <C>        <C>        <C>          <C>                   <C>              <C>    
1993  . . . . . . . 1     $ 382.8     $ 51.6      $ .71      $ 39.9     $  .54       $ 36 1/8-26 5/8       $.050                   
                    2       423.3       79.7       1.11        54.5        .75         36 1/4-27 1/2        .050                   
                    3       442.8       82.6       1.09        54.7        .71         44 1/4-31 3/4        .050                   
                    4       463.5       53.4        .68        49.3        .63         46 1/8-38 3/8        .050                   
                          -------     ------      -----      ------     ------       ---------------       -----            ----
                          1,712.4      267.3       3.58       197.3       2.61         46 1/8-26 5/8        .200            39.8%  
                          =======     ======      =====      ======     ======       ===============       =====            ====
                                                                                                                                   
1992  . . . . . . . 1       346.4       36.1        .47(6)     18.0        .22         18 7/8-14 3/4        .047                   
                    2       365.7       40.1        .53        32.4        .41         19    -15 5/8        .047                   
                    3       373.7       44.7        .62        42.0        .58         22    -18 7/8        .047                   
                    4       393.6       32.9        .45(7)     37.4        .51         29 3/8-21 3/8        .050                   
                          -------     ------      -----      ------     ------       ---------------       -----            ----
                          1,479.4      153.8       2.05       129.8       1.72         29 3/8-14 3/4        .191            63.3%  
                          =======     ======      =====      ======     ======       ===============       =====            ====
                                                                                                                                   
1991  . . . . . . . 1       318.3       25.7        .34        35.5        .47         20 1/4-15 3/8        .043                   
                    2       338.6        9.7        .13        18.6        .24         20 5/8-17 3/8        .043                   
                    3       349.3       11.2        .13        25.8        .33         18 3/4-15 1/2        .043                   
                    4       334.7      (13.7)      (.25)(8)     5.2        .04         18    -15            .043                   
                          -------     ------      -----      ------     ------       ---------------       -----            ----
                          1,340.9       32.9        .41        85.1       1.19         20 5/8-15            .172             6.4%  
                          =======     ======      =====      ======     ======       ===============       =====            ====

<FN>
All per share amounts and stock prices were adjusted for the December 8, 1992, 3-for-1 stock split.

1 Presented on a fully diluted basis. For 1993 and 1992, the sum does not equal the total because the average equivalent shares 
  differ in the periods. For 1991, the sum of the quarterly earnings per share does not equal the total because fourth quarter 
  earnings per share were antidilutive and, therefore, reported on a primary basis.

2 Represents net income less realized gains and losses and one-time non-operating items.

3 For 1993, the sum of the quarterly operating income does not equal the total due to the retroactive impact of the Omnibus Budget 
  Reconciliation Act of 1993.

4 Prices as reported on the New York Stock Exchange.

5 Represents annual rate of return on Progressive Common Shares, including quarterly dividend reinvestment.

6 For the first quarter 1992, income before cumulative effect of accounting change was $21.9 million, or $.28 per share.

7 Adjustments which adversely impacted earnings during the fourth quarter 1992 were the payment to Alfred Lerner (see Note 
  10-Related Party Transactions for further discussion) and reserve adjustments based on routine actuarial analysis completed 
  during the quarter.

8 Adjustments which adversely impacted earnings during the fourth quarter 1991  were an additional write-down of a deferred tax 
  asset due to the Company's inability to realize this asset under the provisions of SFAS 96, an accrual for severance costs as 
  part of the program finalized during the fourth quarter to further align staffing with declining California volume and to 
  streamline other operations, and reserve adjustments based on routine actuarial analysis completed during the period.
</TABLE>


The Progressive Corporation and Subsidiaries

<PAGE>   56
DIRECTORS

Milton N. Allen1,2,3
Director,
Various Corporations

B. Charles Ames
Partner,
Clayton, Dubilier & Rice, Inc.
(management consulting)

Stephen R. Hardis1,2
Vice Chairman, Chief
 Financial and Administrative
 Officer,
Eaton Corporation
(manufacturing)

Peter B. Lewis2
Chairman of the Board,
 President and Chief
 Executive Officer

Norman S. Matthews3
Consultant,
Formerly President,
Federated Department
 Stores, Inc.
(retailing)

Donald B. Shackelford1,3
Chairman,
State Savings Bank
(savings and loan)

Dr. Paul B. Sigler1
Professor, Yale University and
Investigator,
Howard Hughes Medical
 Institute
(education)

1 Audit Committee member

2 Executive Committee member

3 Executive Compensation Committee member


CORPORATE OFFICERS

Peter B. Lewis, Chairman,
 President and Chief
 Executive Officer
David M. Schneider, Secretary
Daniel R. Lewis, Treasurer

CORPORATE SUPPORT TEAM

Charles B. Chokel
Peter B. Lewis
Bruce W. Marlow
Michael C. Murr
David M. Schneider
Tiona M. Thompson

DIVISION PRESIDENTS, PRODUCT AND PROCESS LEADERS

Alan R. Bauer
William P. Cadden
G. Edward Combs
Jeffrey J. Dailey
Allan W. Ditchfield
W. Thomas Forrester
Steven B. Gellen
William H. Graves
Michael J. Hanerty
Stephen G. Klug
Moira A. Lardakis
Daniel R. Lewis
Robert E. Mathe
Robert J. McMillan
Glenn M. Renwick
Andrew W. Rogacki
David L. Roush
Gregory J. Trapp
Robert T. Williams

ANNUAL MEETING

The Annual Meeting of Shareholders will be held at the offices of The
Progressive Corporation, 6671 Beta Drive, Mayfield Village, Ohio 44143 on April
22, 1994, at 10:00 a.m. There were 4,859 shareholders of record on December 31,
1993.

PRINCIPAL OFFICE

The principal office of The Progressive Corporation is at 6300 Wilson Mills
Road, Mayfield Village, Ohio 44143.

TRANSFER AGENT AND REGISTRAR

If you have questions about a specific stock ownership account, write or call:
Corporate Trust Customer Service, National City Bank, 1900 East Ninth Street,
Cleveland, Ohio 44114.  Phone: (216) 575-2498 or (800) 622-6757

COUNSEL

Baker & Hostetler, Cleveland, Ohio

COMMON AND PREFERRED SHARES

The Progressive Corporation's Common Shares (symbol PGR) and Series A Preferred
Shares (symbol PGRPrA) are traded on the New York Stock Exchange. Dividends are
customarily paid on the last day of each quarter.

INTERIM REPORT DISTRIBUTION

The Progressive Corporation has discontinued its practice of automatically
mailing quarterly reports to shareholders whose shares are registered in the
name of a bank, broker or nominee. Any such shareholder wishing to receive
copies of the Company's quarterly shareholder reports may annually send a
letter requesting the reports to The Progressive Corporation, Investor
Relations, 6300 Wilson Mills Road, Box E61, Mayfield Village, Ohio 44143. All
requests must be received by April 15 of the year for which such reports are
requested.