Progressive Corp., the fourth- largest U.S. auto insurer, said profit fell 15 percent on investment writedowns.

Second-quarter net income dropped to $211.9 million, or 32 cents a share, from $250.1 million, or 37 cents, in the year- earlier period, the Mayfield Village, Ohio-based company said today in a statement. Operating income, which excludes investment losses, was about 36 cents a share, matching the average estimate of 19 analysts surveyed by Bloomberg.

The insurer had its main operating subsidiaries downgraded by Standard & Poor’s on June 10 on the possibility that investments will falter. The units were cut to AA from AA+ on “vulnerability to earnings volatility” from investments.

“Progressive tends to have a modestly more aggressive investment portfolio,” said Paul Newsome, an analyst with Sandler O’Neill & Partners LP in Chicago. “They have a little more equity exposure than is typical for public companies. With the financial markets where they were, that meant more impairment charges” in the three months ended June 30.

Progressive had an investment loss of $39.5 million before taxes in the three months ended June 30 compared with a $15.9 million investment gain in the year-earlier period. The stock portfolio had a 5.7 percent decline in June while fixed-income holdings added 0.6 percent.

Stock Decline

The insurer slipped 21 cents to $19.63 at 9:35 a.m. in New York Stock Exchange composite trading. Progressive rose 10 percent this year through yesterday, beating the 9.4 percent gain in the 24-company KBW Insurance Index.

The insurer has been adding highly rated securities such as Treasuries to limit writedowns after the decline of more volatile holdings cost $1.45 billion before taxes in 2008. Book value per share, a measure of assets minus liabilities, rose to $9.44 from $9.26 as of March 31.

Premium revenue increased 4.3 percent to $3.59 billion from $3.44 billion in the year-earlier period. Progressive’s total personal auto insurance policies rose to 7.97 million from 7.81 million in March, led by a 15 percent increase in the number of customers who signed up through direct channels including the Internet or mail.

The insurer had an underwriting profit margin of 7.3 cents on every dollar it collected in premiums for the quarter, compared with a 7.4 cent margin in last year’s second quarter.

“Underwriting was a little better than I expected,” said Newsome. Outside of the investment portfolio, “results looked pretty good.”

Allstate, Geico

Progressive is seeking to gain market share as it competes against Allstate Corp. and Berkshire Hathaway Inc.’s Geico Corp. selling coverage to individuals. Chief Executive Officer Glenn Renwick is adding customers through the Internet and attracting clients who own motorcycles, mobile homes and boats.

Claims costs for Progressive rose 3.5 percent in the six months ended June 30 to $4.97 billion. Travel on U.S. roads in April rose 1.2 percent from the year-earlier month to 255.9 billion miles, according to the Federal Highway Administration. The agency has not yet reported results for May and June. More miles driven may result in a higher frequency of claims for auto insurers.

By Dan Kraut, Steve Dickson

Tags: banks, economy, financial, financial market, global recovery, Hard Money Loans, investment, stock market

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