Fitch Affirms Progressive’s Ratings

June 10, 2005

Fitch Ratings has affirmed the “A+” long-term issuer and senior debt ratings of the Mayfield Village, Ohio-based Progressive Corp. The ratings on about $1.3 billion of senior debt are affected. Fitch has also affirmed the “AA+” insurer financial strength ratings of the 24 pooled and reinsured members of the Progressive Group of Insurance Cos.

The group represents substantially all of the personal automobile insurance operations of Progressive. The rating outlook is stable.
The ratings and rating outlook, Fitch said, reflect Progressive’s excellent operating performance, pricing and underwriting expertise, personal auto insurance franchise, modest catastrophe risk, conservative investment allocation, and good reserve adequacy.

Progressive’s overall GAAP combined ratios for 2004 and for the four months ended April 30, 2005, were 85.1 percent and 85.1 percent, respectively, which represent continued strong results when compared to the 87.3 percent and 83.4 percent GAAP combined ratios reported for 2003 and the four months ended April 30, 2004, respectively.

Conversely, the ratings also reflect Progressive’s high (though declining) growth rate, higher-than-average operating leverage, and limited product diversification. Progressive also employs a moderate amount of financial leverage. However, financial leverage declined in 2004 even though Progressive repurchased approximately 18.6 million common shares for approximately $1.6 billion.

Fitch believes Progressive’s primary goal is the achievement of a 96 percent GAAP combined ratio. Thus, Fitch expects that Progressive’s premium growth rate will depend on its ability to achieve its profitability goal and that growth will moderate if competition in the auto insurance industry increases. Fitch also considers Progressive’s loss reserves to be adequate and expects that loss reserve development, if any, will generally be modest. Fitch expects that Progressive’s financial leverage, as measured by its debt-to-total-capital ratio, will range around 20 percent.

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