Progressive: Back on the Road to Profits

| About: Progressive Corporation (PGR)

Progressive (NYSE:PGR) is one of those ridiculously profitable insurance companies that I wish I had bought years ago. Just from watching TV, you’re probably familiar with the commercial wars between Geico (Cavemen, the Gecko and Buffett) and Progressive (Flo).

Here’s the thing: Car insurance can be very profitable industry. And I mean very profitable. Unlike some other forms of insurance, everyone has to buy it and the experts have thorough data on accidents.

Over the last 35 years, PGR’s stock is up more than 1500-fold compared with 14-fold for the S&P 500. The last few years, however, have not been so kind to Progressive. Near the end of 2005, the stock broke $31 a share (split-adjusted) and it eventually dipped below $10 a share last March.

Annual earnings-per-share dropped from $2.13 in 2006 to $1.55 in 2007 and $1.29 in 2008. Last year, EPS rose slightly to $1.55. Margins have squeezed the entire industry.

PGR’s Q1 earnings came out this morning and they were very good:

Progressive reported a profit of $295.6 million, or 44 cents a share, up from earnings of $232.5 million, or 35 cents a share, a year earlier. The latest period included $30.8 million in investment gains, while the prior year included losses of $73.4 million.

Net premiums written increased 7% to $3.78 billion, while premiums earned rose 3% to $3.5 billion.

Analysts surveyed by Thomson Reuters projected earnings of 37 cents a shares on $3.69 billion of premiums written.

The combined ratio, or amount of premiums paid as claims, rose to 90.9% from 89.5%. Meanwhile, the amount of personal auto and special-lines polices in force--largely homes--rose 7% and 3%, respectively, to 7.8 million and 3.5 million.

This is very good news, but I want to see more before I'm convinced the turnaround is for real.