PROGRESSIVE COR : OH/ Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

I. OVERVIEW The Progressive Corporation’s insurance subsidiaries recognized growth in both premiums and policies in

I. OVERVIEW
The Progressive Corporation's insurance subsidiaries recognized growth in both
premiums and policies in force in the second quarter 2021, compared to the same
period last year. During the quarter, we generated $11.5 billion of net premiums
written, which is an increase of $1.3 billion, or 13%, compared to the second
quarter 2020. We ended the second quarter 2021 with 26.4 million companywide
policies, which is 2.6 million more policies than were in force at June 30,
2020. Our underwriting profit margin of 3.5% for the second quarter 2021 was 8.8
points lower than the same period last year. Certain growth and profitability
comparisons to the same period last year were, in part, impacted by the effects
COVID-19 restrictions had on our comparable prior year results. During the
second quarter of 2020, shelter-in-place restrictions were in place to help stop
the spread of the novel coronavirus, COVID-19. We saw a significant reduction in
auto accident frequency resulting from changes in driving patterns in 2020. The
impact from the pandemic should be considered when comparing year-over-year
changes.
On a year-over-year basis, net income and comprehensive income decreased 56% and
63%, respectively, for the second quarter 2021 and 9% and 42% for the first six
months of 2021. The largest contributor to the year-over-year decreases was the
reduction of underwriting income, which decreased 68% for the quarter and 38%
for the first six months of 2021, partially offset by an increase in net holding
period gains for the six months ended June 30, 2021, compared to the same period
last year. The decreased underwriting profitability primarily reflected a
significant increase in loss and loss adjustment expenses (LAE), which was in
part offset by lower underwriting expenses in the second quarter 2021, compared
to the second quarter 2020. For the second quarter 2021, losses and LAE reflect
higher auto accident frequency and severity in both our personal and commercial
auto products, coupled with lower average premiums per policy for our personal
auto products. As pandemic-related restrictions were significantly reduced
during the second quarter 2021, both frequency and vehicle miles traveled
experienced increases, especially later in the second quarter. The increase in
personal auto severity reflects higher costs to both repair cars and for medical
expenses. The year-over-year increase in collision coverage severity, in part,
reflects an increase in the valuation of used vehicles in 2021, which increases
total loss costs that are partly offset by higher salvage returns. We also had
lower collision severity in the second quarter of 2020, due to a higher volume
of subrogation collections relative to new claims made, as a result of the
COVID-19 restrictions. Our bodily injury coverage also saw an increase during
the quarter due to a higher mix of more severe accidents.
Our underwriting expense ratios were 12.5 points and 6.6 points lower for the
second quarter and first six months of 2021, respectively, compared to the same
periods last year. In April and May 2020, we issued credits to personal auto
policyholders and recognized additional bad debt expense related to the billing
leniencies and moratoriums that were in place through the middle of May 2020,
which contributed to the year-over-year variances.
During the second quarter 2021, our total capital (debt plus shareholders'
equity) increased $839.8 million, to $24.1 billion, primarily reflecting
comprehensive income earned during the quarter, partially offset by common share
repurchases and dividends declared during the period.
A. Insurance Operations
We evaluate growth in terms of both net premiums written and policies in force
growth. All three of our operating segments contributed to our solid premium and
policies in force growth during the second quarter on a year-over-year basis.
Our companywide net premiums written grew 13%, with Personal Lines growing 6%,
Commercial Lines 66%, and Property 15%, primarily reflecting an increase in
volume from all of our segments. Our year-over-year Personal Lines growth for
the second quarter 2021 was in part impacted by the solid growth experienced in
the second quarter 2020 from our special lines business and renewal activity in
our personal auto business as the moratoriums and billing leniencies that were
in place were lifted. For our Commercial Lines business, in addition to an
increase in policies in force, written premium growth also reflected a 20%
increase in average written premium per policy on a quarter-over-prior-year
quarter basis.
In addition to the increase in our traditional business market targets
year-over-year, Commercial Lines premiums growth during the second quarter 2021
reflected an increase in premiums in the transportation network company (TNC)
business related to the expansion of our footprint in rideshare coverage and an
increase in the estimated number of miles driven during the remainder of the
policy terms. Our Property business continued to recognize solid growth for both
the second quarter and year-to-date periods. At June 30, 2021, on a
year-over-year basis, policies in force grew 11% companywide, with Personal
Lines, Commercial Lines, and Property growing 10%, 18%, and 14%, respectively.
During the second quarter 2021, new applications (i.e., issued policies)
increased 7%, 52%, and 29% in our Personal Lines, Commercial Lines (excluding
TNC and our business owners policy product), and Property segments,
respectively. During the quarter, total new personal auto applications increased
9% on a year-over-year basis, with Agency new applications increasing
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9% and Direct increasing 10%. While year-over-year new applications were strong
at the beginning of the second quarter 2021, by the end of the quarter growth in
new applications was lower than the prior year as we started taking actions to
address profitability, as discussed below. New applications for our special
lines products were up 1% during the second quarter 2021, primarily reflecting
the significant new application growth during the second quarter 2020, as people
were purchasing more special lines products as a way to practice social
distancing.
On a year-over-year basis for the second quarter 2021, our Personal Lines
renewal applications increased 9%, and both Commercial Lines and Property
increased 8%. Total personal auto renewal applications increased 9% over the
second quarter last year.
To grow policies in force, it is critical that we retain our customers for
longer periods. Consequently, increasing retention continues to be one of our
most important priorities. Our efforts to increase our share of multi-product
households remains a key initiative and we will continue to make investments to
improve the customer experience to continue to support that goal. Policy life
expectancy, which is our actuarial estimate of the average length of time that a
policy will remain in force before cancellation or lapse in coverage, is our
primary measure of customer retention in our Personal Lines, Commercial Lines,
and Property businesses.
Due to insurance market volatility brought on by the COVID-19 virus, it may be
difficult to assess the progress we are making against our retention goals. We
evaluate retention using a trailing 12-month total auto policy life expectancy
and a trailing 3-month policy life expectancy. The latter does not address
seasonality and can reflect more volatility. Due to suspending cancellations of
policies for nonpayment during the second quarter 2020, which impacted renewal
activity, the growth in our auto trailing 3-month policy life expectancy was
artificially high during the second quarter 2020. Due to these unusual
circumstances, consistent with the second quarter 2020, we have chosen not to
disclose the year-over-year decrease in the trailing 3-month measure, as we do
not believe the measure is meaningful. As of the end of the second quarter 2021,
our trailing 12-month total personal auto policy life expectancy increased 3%,
compared to last year. While this measure was also positively impacted during
the second quarter 2020 by the inclusion of the items discussed above, it was
impacted to a much lesser extent. Our Agency auto and Direct auto trailing
12-month policy life expectancy were both up 3%. Our Commercial Lines trailing
12-month policy life expectancy increased 5% year over year, special lines was
flat, and Property decreased 6%.
Our companywide underwriting margin for the second quarter 2021 was 3.5%,
compared to 12.3% for the same period last year. Our personal auto incurred
accident frequency was up 47% for the second quarter 2021, as compared to the
prior year, and severity was up 8%. With more people driving and vehicle miles
traveled increasing, loss frequency is more in line with what we were
experiencing prior to the onset of the pandemic. Collision is a significant
driver of the increased severity we experienced during the current quarter as
the increase in the valuation of used vehicles is increasing our total loss and
repair costs.
Throughout the second quarter, based on our usage-based insurance data, we
observed the number of vehicle miles traveled continue to climb towards
pre-pandemic levels. Claims frequency has also been moving towards pre-pandemic
levels. Towards the end of the second quarter, the pace at which frequency was
returning to pre-pandemic levels accelerated relative to vehicle miles traveled.
This, in concert with lower personal auto average premiums and increased claims
severity has eroded our underwriting margin. While it is difficult to accurately
assess these trends moving forward, we expect continuing pressure on our
underwriting margins from these, and potentially other trends, and are taking
actions detailed below to strive to meet our stated objective of underwriting
margins of at least four points on a calendar year basis.
During the second quarter 2021, rate increases were effective in 11 states,
which had an average increase of about 5%. In the aggregate, rate changes for
personal auto for the quarter were about 2%. Management continues to assess
miles driven, driving patterns, loss severity, weather events, and other
components of expected loss costs on a state-by-state basis and, where
appropriate, adjust rates accordingly. We are also looking to identify where we
may need to tighten underwriting criteria further where losses indicate rate
inadequacy. In addition to rate actions, at the beginning of the third quarter
2021, we started reducing advertising spend in certain areas based on
performance against our media and underwriting targets. We will continue to look
at key performance indicators to assess where additional action is needed and
will react swiftly to address those needs. These actions could result in fewer
new business applications.
Our Personal and Commercial Lines operating segments were profitable during the
second quarter 2021, while our Property business generated an underwriting loss,
due to significant catastrophe losses incurred during the quarter. Our Personal
Lines segment generated an underwriting profit margin of 3.8% for the second
quarter 2021, which was aided minimally by our special lines business, which
contributed a favorable 0.2 point impact on our Personal Lines combined ratio
for the quarter. Our Commercial Lines underwriting profit margin for the second
quarter was 8.0%. Our Property segment had an underwriting loss margin of 16.6%
for the quarter. On a net basis (i.e., after reinsurance), our Property business
incurred catastrophe losses, during the second quarter, of $128.0 million, or
25.5 points on their combined ratio.
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B. Investments
The fair value of our investment portfolio was $50.9 billion at June 30, 2021,
compared to $47.5 billion at December 31, 2020. The $3.4 billion increase from
year-end 2020 is the result of solid cash flows from operations, net of
shareholder dividends, strong investment results, as well as from the
acquisition of Protective Insurance Corporation and its subsidiaries (Protective
Insurance) (see Note 14 - Acquisition for further discussion).
Our asset allocation strategy is to maintain 0%-25% of our portfolio in Group I
securities, with the balance (75%-100%) of our portfolio in Group II securities
(the securities allocated to Group I and II are defined below under Results of
Operations - Investments). At June 30, 2021, 16% of our portfolio was allocated
to Group I securities and 84% to Group II securities, compared to 14% and 86%,
respectively, at December 31, 2020.
Our recurring investment income generated a pretax book yield of 1.9% for the
second quarter 2021, compared to 2.5% for the same period in 2020, primarily due
to investing new cash at lower interest rates. Our investment portfolio produced
a fully taxable equivalent (FTE) total return of 1.7% and 4.5% for the second
quarter 2021 and 2020, respectively. Our fixed-income and common stock
portfolios had FTE total returns of 1.1% and 7.3%, respectively, for the second
quarter 2021, compared to 3.4% and 21.5%, respectively, last year. The
year-over-year decrease in our fixed-income FTE total return was the result of
an increase in interest rates. The common stock portfolio's FTE total return
reflects that during the second quarter last year, our common stock portfolio's
FTE total return improved significantly as investors moved back into risk
assets, following a decline at the end of the first quarter 2020, which
reflected investors' response to the economic uncertainty due to the COVID-19
restrictions.
At June 30, 2021, the fixed-income portfolio had a weighted average credit
quality of AA- and a duration of 3.1 years, compared to AA- and 3.0 years and
AA- and 2.9 years at June 30, 2020 and December 31, 2020, respectively. While we
have slightly lengthened our portfolio duration over the previous twelve months,
it remains below the midpoint of our 1.5-year to 5-year range, which we believe
provides some protection against a further increase in interest rates.

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II. FINANCIAL CONDITION
A. Liquidity and Capital Resources
Progressive's insurance operations create liquidity by collecting and investing
premiums from new and renewal business in advance of paying claims. Operations
generated positive cash flows of $4.9 billion and $3.9 billion for the six
months ended June 30, 2021 and 2020, respectively, in part due to collecting
premiums at a faster rate than losses are being paid.
Our total capital (debt plus shareholders' equity) was $24.1 billion, at book
value, at June 30, 2021, compared to $22.1 billion at June 30, 2020, and $22.4
billion at December 31, 2020. The increase since year end primarily reflected
net income, in part offset by common share repurchases, dividends declared, and
other comprehensive loss during the period.
Our debt-to-total capital ratio remained below 30% during all reported periods,
consistent with our financial policy. This ratio, which reflects debt as a
percent of debt plus shareholders' equity, was 22.4% at June 30, 2021, 24.4% at
June 30, 2020, and 24.1% at December 31, 2020. None of our outstanding senior
notes have restrictive financial covenants or credit rating triggers.
We seek to deploy capital in a prudent manner and use multiple data sources and
modeling tools to estimate the frequency, severity, and correlation of
identified exposures, including, but not limited to, catastrophic and other
insured losses, natural disasters, and other significant business interruptions,
to estimate our potential capital needs.
During the first six months of 2021, we returned capital to shareholders
primarily through dividends and common share repurchases. Our Board of Directors
declared a $0.10 per common share dividend in both the first and second quarters
2021. These dividends, which were each $58.5 million in the aggregate, were paid
in April 2021 and July 2021, respectively. In addition to the common share
dividends, in March 2021, we paid Series B Preferred Share dividends in the
aggregate amount of $13.4 million. In January 2021, we also paid common share
dividends in the aggregate amount of $2.7 billion, or $4.60 per share (see Note
9 - Dividends for further discussion). In accordance with our financial
policies, during 2021, we repurchased 1.1 million common shares, at a total cost
of $95.4 million, either in the open market or to satisfy tax withholding
obligations as permitted under our equity compensation plans. We will continue
to make decisions on returning capital to shareholders based on the strength of
our capital position and the potential capital needs to expand our business
operations.
In April 2021, we renewed the unsecured discretionary line of credit (the "Line
of Credit") with PNC Bank, National Association, in the maximum principal amount
of $250 million. We did not engage in short-term borrowings, including any
borrowings under our Line of Credit, to fund our operations or for liquidity
purposes during the reported periods.

On June 1, 2021, Progressive acquired all of the outstanding Class A and Class B
common shares of Protective Insurance for $23.30 per share, or approximately
$338 million in aggregate. The acquisition was funded with cash held by
Progressive. See Note 14 - Acquisition for further discussion.
Based upon our capital planning and forecasting efforts, we believe we have
sufficient capital resources and cash flows from operations to support our
current business, scheduled principal and interest payments on our debt,
anticipated dividends on our common shares and Series B Preferred Shares, our
contractual obligations, and other expected capital requirements for the
foreseeable future, including the $500 million of 3.75% Senior Notes maturing in
August of 2021. We did not experience a significant change in our liquidity
needs during the second quarter 2021. During the first six months of 2021 and at
all times during 2020, our total capital exceeded the sum of our regulatory
capital layer plus our self-constructed extreme contingency layer, as described
in Exhibit 13 to our Annual Report on Form 10-K for the year ended December 31,
2020 (2020 Annual Report to Shareholders).
B. Commitments and Contingencies
Contractual Obligations
During the first six months of 2021, our contractual obligations have not
changed materially from those discussed in our 2020 Annual Report to
Shareholders.
Off-Balance-Sheet Arrangements
Our off-balance-sheet leverage includes purchase obligations and catastrophe
excess of loss reinsurance contracts. There have not been any material changes
in off-balance-sheet items from those discussed in our 2020 Annual Report to
Shareholders.

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III. RESULTS OF OPERATIONS - UNDERWRITING
A. Segment Overview
We report our underwriting operations in three segments: Personal Lines,
Commercial Lines, and Property. As a component of our Personal Lines segment, we
report our Agency and Direct business results to provide further understanding
of our products by distribution channel.
The following table shows the composition of our companywide net premiums
written, by segment, for the respective periods:
                                                         Three Months Ended June 30,              Six Months Ended June 30,
                                                           2021                2020               2021                 2020
Personal Lines
Agency                                                         38  %              40  %               38  %                41  %
Direct                                                         40                 43                  41                   43
Total Personal Lines1                                          78                 83                  79                   84
Commercial Lines                                               17                 12                  16                   12
Property                                                        5                  5                   5                    4
Total underwriting operations                                 100  %             100  %              100  %               100  %


1 Personal auto insurance accounted for 91% of the total Personal Lines segment
net premiums written during the three months and 93% during the six months ended
June 30, 2021 and 2020; insurance for our special lines products accounted for
the balance.
Our Personal Lines business writes insurance for personal autos and special
lines products (e.g., motorcycles, watercraft, and RVs). We currently write our
Personal Lines products in all 50 states. We also offer our personal auto
product (not special lines products) in the District of Columbia. Within
Personal Lines we often refer to our four consumer segments, which include:
•Sams - inconsistently insured;
•Dianes - consistently insured and maybe a renter;
•Wrights - homeowners who do not bundle auto and home; and
•Robinsons - homeowners who bundle auto and home.
While our personal auto policies are primarily written for 6-month terms, we
write 12-month auto policies in our Platinum agencies to promote bundled auto
and home growth. At June 30, 2021, 13% of our Agency auto policies in force were
12-month policies, compared to 11% a year earlier. Our special lines products
are written for 12-month terms.
Our Commercial Lines business writes auto-related liability and physical damage
insurance, workers' compensation coverage primarily for the transportation
industry, and business-related general liability and property insurance,
predominately for small businesses. The majority of our Commercial Lines
business is written through the independent agency channel although our direct
business is growing. The amount of commercial auto business written through the
direct channel, excluding our TNC business, grew 93% on a
quarter-over-prior-year and represented 10% of premiums written for the second
quarter 2021, compared to 8% for the same period last year. We write Commercial
Lines business in all 50 states and about 90% of these policies are written for
12-month terms. To serve our direct channel customers, we continued to expand
our product offerings, including the addition of our business owners policy
product in 22 states by the end of the second quarter, through our in-house
agency and BusinessQuote Explorer®, our digital platform for small business
consumers.
Our Property business writes residential property insurance for single family
homes, condominium unit owners, renters, etc. We write the majority of our
Property business through the independent agency channel; however, we continue
to expand the distribution of our Property product offerings in the direct
channel, which represented about 22% of premiums written for the second quarter
2021, compared to 17% for the same period last year. Property policies are
written for 12-month terms. We write residential property in 47 states, renters
in 48 states, and flood insurance in 46 states; we also write all of these
products in the District of Columbia. Our flood insurance is written primarily
through the National Flood Insurance Program and is 100% reinsured.
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B. Profitability
Profitability for our underwriting operations is defined by pretax underwriting
profit, which is calculated as net premiums earned plus fees and other revenues
less losses and loss adjustment expenses, policy acquisition costs, and other
underwriting expenses. We also use underwriting margin, which is underwriting
profit or loss expressed as a percentage of net premiums earned, to analyze our
results. For the respective periods, our underwriting profitability results were
as follows:
                                                               Three Months Ended June 30,                                                             Six Months Ended June 30,
                                                     2021                                       2020                                        2021                                         2020
                                                 Underwriting                               Underwriting                                Underwriting                                 Underwriting
                                                 Profit (Loss)                             Profit (Loss)                                Profit (Loss)                               Profit (Loss)
($ in millions)                              $                 Margin                  $                  Margin                    $                   Margin                  $                  Margin
Personal Lines
Agency                                $      207.5                 4.9  %       $       550.6                14.0  %       $      755.0                     9.1  %       $     1,152.2                14.9  %
Direct                                       128.4                 2.8                  647.2                15.5                 543.0                     6.0                1,120.2                13.7
Total Personal Lines                         335.9                 3.8                1,197.8                14.8               1,298.0                     7.5                2,272.4                14.3
Commercial Lines                             130.1                 8.0                  179.8                15.9                 358.6                    11.8                  292.3                12.6
Property1                                    (83.3)              (16.6)                (188.7)              (43.6)               (154.0)                  (15.8)                (139.5)              (16.3)
Other indemnity2                               0.1                     NM                   0                     NM                0.1                         NM                   0                     NM
Total underwriting operations         $      382.8                 3.5  %       $     1,188.9                12.3  %       $    1,502.7                     7.0  %       $     2,425.2                12.7  %


1 For the three and six months ended June 30, 2021 and 2020, pretax profit
(loss) includes $14.1 million and $28.3 million, respectively, of amortization
expense associated with acquisition-related intangible assets attributable to
our Property segment, and $14.1 million and $28.6 million for the respective
periods last year.
2 Primarily includes Protective Insurance's run-off business operations.
Underwriting margins for our other indemnity business are not meaningful (NM)
due to the low level of premiums earned by such business.
The decreases in the companywide underwriting profit margins during the three
and six months ended June 30, 2021, compared to the same periods last year, were
primarily driven by higher accident frequency and severity. See the Losses and
Loss Adjustment Expenses (LAE) section below for further discussion of our
frequency and severity trends.

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Further underwriting results for our Personal Lines business, including results
by distribution channel, the Commercial Lines business, the Property business,
and our underwriting operations in total, were as follows:
                                                              Three Months Ended June 30,                                       Six Months Ended June 30,
Underwriting Performance1                               2021                  2020                Change                2021                  2020                  Change
Personal Lines - Agency
Loss & loss adjustment expense ratio                76.5                  53.2                  23.3                72.2                  58.8                    13.4
Underwriting expense ratio                          18.6                  32.8                 (14.2)               18.7                  26.3                    (7.6)
Combined ratio                                      95.1                  86.0                   9.1                90.9                  85.1                     5.8
Personal Lines - Direct
Loss & loss adjustment expense ratio                77.0                  50.3                  26.7                72.8                  57.9                    14.9
Underwriting expense ratio                          20.2                  34.2                 (14.0)               21.2                  28.4                    (7.2)
Combined ratio                                      97.2                  84.5                  12.7                94.0                  86.3                     7.7
Total Personal Lines
Loss & loss adjustment expense ratio                76.8                  51.7                  25.1                72.5                  58.3                    14.2
Underwriting expense ratio                          19.4                  33.5                 (14.1)               20.0                  27.4                    (7.4)
Combined ratio                                      96.2                  85.2                  11.0                92.5                  85.7                     6.8
Commercial Lines
Loss & loss adjustment expense ratio                71.8                  57.3                  14.5                67.9                  62.9                     5.0
Underwriting expense ratio                          20.2                  26.8                  (6.6)               20.3                  24.5                    (4.2)
Combined ratio                                      92.0                  84.1                   7.9                88.2                  87.4                     0.8
Property
Loss & loss adjustment expense ratio                87.5                 114.0                 (26.5)               86.2                  86.5                    (0.3)
Underwriting expense ratio2                         29.1                  29.6                  (0.5)               29.6                  29.8                    (0.2)
Combined ratio2                                    116.6                 143.6                 (27.0)              115.8                 116.3                    (0.5)
Total Underwriting Operations
Loss & loss adjustment expense ratio                76.5                  55.2                  21.3                72.5                  60.2                    12.3
Underwriting expense ratio                          20.0                  32.5                 (12.5)               20.5                  27.1                    (6.6)
Combined ratio                                      96.5                  87.7                   8.8                93.0                  87.3                     5.7
Accident year - Loss & loss adjustment expense
ratio3                                              75.8                  55.5                  20.3                71.6                  59.6                    12.0


1 Ratios are expressed as a percentage of net premiums earned; fees and other
revenues are netted with underwriting expenses in the ratio calculations.
2 Included in the three and six months ended June 30, 2021, are 2.8 points and
2.9 points, respectively, of amortization expense associated with
acquisition-related intangible assets attributable to our Property segment, and
3.3 points and 3.4 points for the respective periods last year. Excluding these
additional expenses, for the three months ended June 30, 2021 and 2020, the
Property business would have reported expense ratios of 26.3 for both periods,
and combined ratios of 113.8 and 140.3, respectively. For the six months ended
June 30, 2021 and 2020, excluding these additional expenses, the Property
business would have reported expense ratios of 26.7 and 26.4, respectively, and
combined ratios of 112.9 for both periods.
3 The accident year ratios include only the losses that occurred during the
period noted. As a result, accident period results will change over time, either
favorably or unfavorably, as we revise our estimates of loss costs when payments
are made or reserves for that accident period are reviewed.

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Losses and Loss Adjustment Expenses (LAE)

                                                    Three Months Ended June 30,                    Six Months Ended June 30,
(millions)                                                   2021               2020                        2021                2020
Increase (decrease) in net loss and LAE
reserves                                        $      1,603.1          $   146.5          $      2,230.6              $    116.1
Paid losses and LAE                                    6,803.3            5,174.9                13,286.3                11,360.5
Total incurred losses and LAE                   $      8,406.4          $ 5,321.4          $     15,516.9              $ 11,476.6


Claims costs, our most significant expense, represent payments made and
estimated future payments to be made, to or on behalf of our policyholders,
including expenses needed to adjust or settle claims. Claims costs are a
function of loss severity and frequency and, for our vehicle businesses, are
influenced by inflation and driving patterns, among other factors, some of which
are discussed below. In our Property business, severity is primarily a function
of construction costs and the age of the structure. Accordingly, anticipated
changes in these factors are taken into account when we establish premium rates
and loss reserves. Loss reserves are estimates of future costs and our reserves
are adjusted as underlying assumptions change and information develops.
Our total loss and LAE ratio increased 21.3 points for the second quarter 2021,
compared to the same period last year, and 12.3 points on a year-to-date basis,
primarily due to higher accident severity and frequency.
The following table shows our consolidated catastrophe losses, excluding loss
adjustment expenses, incurred during the periods:
                                                       Three Months Ended June 30,                   Six Months Ended June 30,
($ in millions)                                        2021                   2020                   2021                  2020
Personal Lines                                   $   211.8               $  164.7              $   276.9              $  201.9
Commercial Lines                                       6.6                    6.3                    8.4                   7.6
Property                                             128.0                  234.8                  272.6                 276.7
   Total net catastrophe losses incurred         $   346.4               $  405.8              $   557.9              $  486.2
Combined ratio effect                                  3.2    pts.            4.2   pts.             2.6   pts.            2.5   pts.


During the second quarter 2021, the majority of catastrophe losses were due to
wind and hail throughout the United States. We have responded, and plan to
continue to respond, promptly to catastrophic events when they occur in order to
provide exemplary claims service to our customers.
We do not have catastrophe-specific reinsurance for our Personal Lines or
Commercial Lines businesses, but we reinsure portions of our Property business
against various risks. The Property business reinsurance programs include:
multi-year catastrophe excess of loss, aggregate excess of loss, and catastrophe
bonds. During the second quarter 2021, we entered into new reinsurance contracts
under our per occurrence excess of loss program for our Property business. The
new reinsurance policies carry retention thresholds for losses and allocated
loss adjustment expenses (ALAE) from a single catastrophic event of $200
million, an increase from the retention threshold on the prior contracts of $80
million. The increase in the threshold from the prior contract primarily
reflects our ability to assume more direct risk on a companywide basis, while
balancing this risk against the rising costs for these types of contracts. See
Item 1 - Description of Business-Reinsurance in our Annual Report on Form 10-K
for the year ended December 31, 2020, for a discussion of our various
reinsurance programs. As of June 30, 2021, on a year-to-date basis, we have
incurred $276.3 million of losses and ALAE subject to our 2021 catastrophe
aggregate excess of loss program and have not exceeded the $475 million annual
retention threshold.
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Under our various Property catastrophe-specific reinsurance, we ceded the
following losses and ALAE, including development on prior year storms, during
the periods:

                                                 Three Months Ended June 30,           Six Months Ended June 30,
(in millions)                                       2021                 2020           2021                 2020
Aggregate excess of loss:
Current accident year                        $             0          $      0    $            0          $      0
Prior accident years                                    12.7                   NA           13.5                   NA
Per occurrence excess of loss:
Current accident year                                  (12.5)                0               7.5                 0
Prior accident years1                                   15.0              40.0             134.6              80.0

Total                                        $          15.2          $   40.0    $        155.6          $   80.0


NA = Not applicable; this reinsurance coverage was entered into on January 1,
2020.
1 Increase during the six months ended June 30, 2021, primarily represents prior
year development on Hurricane Irma. In 2017, we reached our excess of loss
retention threshold for Irma and, as a result, all prior year development is
fully ceded.
The following discussion of our severity and frequency trends in our personal
auto businesses excludes comprehensive coverage because of its inherent
volatility, as it is typically linked to catastrophic losses generally resulting
from adverse weather. For our commercial auto products, the reported frequency
and severity trends include comprehensive coverage. Comprehensive coverage
insures against damage to a customer's vehicle due to various causes other than
collision, such as windstorm, hail, theft, falling objects, and glass breakage.
Due to the impacts of shelter-in-place requirements that occurred throughout
much of 2020, we believe that comparing current year frequency and severity to
the prior year are not meaningful for our personal auto businesses. For
reference, on a year-over-year basis for the second quarter and the first six
months of 2021, frequency increased 47% and 19%, respectively, for all
coverages, excluding comprehensive coverage, and severity increased 8% and 6%.
The trend comparisons below compare a two-year annualized change between 2021
and 2019 for personal auto frequency and severity, which we feel are more
insightful when trying to understand our current year profitability given the
impact that COVID-19 restrictions had on our 2020 trends.
We saw the number of vehicle miles driven decrease dramatically when the
COVID-19 restrictions were first put in place, especially during the early
months of the pandemic. Now that the shelter-in-place restrictions have been
eliminated, our usage-based insurance data has shown that the variance between
vehicle miles traveled and claims volume decreased as the number of claims grew
at a faster pace during the second quarter 2021.
Total personal auto incurred severity (i.e., average cost per claim, including
both paid losses and the change in case reserves) on a calendar-year basis
increased about 8% during the second quarter and the first six months of 2021,
compared to the same period in 2019.
Following are the changes we experienced in severity in our auto coverages on a
2021 year-over-2019 year annualized basis:
•Bodily injury increased about 10% for the second quarter and the first six
months of 2021, due in part to a shift in the mix to more severe accidents
compared to 2019.
•Personal injury protection (PIP) increased about 10% during the second quarter
2021 and 7% during the first six months of 2021, due in part to reopened claims,
primarily in Florida.
•Auto property damage and collision increased about 6% and 9%, respectively, for
the second quarter 2021 and 6% and 7% for the first six months of 2021, in part
due to shifts in the type of loss experienced, more total losses, and increased
used car prices.
It is a challenge to estimate future severity, but we continue to monitor
changes in the underlying costs, such as used car prices, vehicle repair costs,
medical costs, health care reform, court decisions, and jury verdicts, along
with regulatory changes and other factors that may affect severity.
Our personal auto incurred frequency, on a calendar-year annualized basis,
decreased about 6% and 8% for the second quarter and for the first six months of
2021, compared to the same periods in 2019. Following are the frequency changes
we experienced by coverage, and primarily resulted from changes in driving
patterns from those historically experienced:
•Auto property damage, bodily injury, and PIP each decreased about 9% to 10% for
the second quarter of 2021 and 11% to 12% for the first six months of 2021,
compared to 2019.
•Collision decreased about 2% for the quarter and 5% for the first six months of
2021.
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We will continue to analyze trends to distinguish changes in our experience from
other external factors, such as changes in the number of vehicles per household,
miles driven, vehicle usage, gasoline prices, advances in vehicle safety, and
unemployment rates, versus those resulting from shifts in the mix of our
business or changes in driving patterns, to allow us to react quickly to price
for these trends and to reserve more accurately for our loss exposures.
The changes we are disclosing in the paragraph below for our commercial auto
products severity and frequency use a trailing 12-month period and exclude our
TNC business. Using a trailing 12-month period addresses inherent seasonality
trends in the commercial auto products and lessens the effects of month-to-month
variability, including the impact of COVID-19 restrictions. Since the loss
patterns in the TNC business are not indicative of our other commercial auto
products, disclosing severity and frequency trends excluding that business is
more indicative of our overall experience for the majority of our commercial
auto products.
For the trailing 12-month period ending June 30, 2021, compared to the same
period in 2020, incurred severity in our commercial auto products increased 6%
and frequency was flat. The increase in severity is in part due to increased
medical costs and actuarially determined reserves due to accelerating paid loss
trends and shifts in the mix of business to for-hire transportation, which has
higher average severity than the business auto and contractor business market
targets. Information from our usage-based insurance data shows commercial auto
driving miles and congestion levels are back to pre-pandemic levels, which we
believe will result in more claims activity. As a result, we will continue to
adjust our pricing and increase our claims staff to prepare for the expected
year-over-year increase in our commercial auto claims volume.
The table below presents the actuarial adjustments implemented and the loss
reserve development experienced in the following periods on a companywide basis:
                                                         Three Months Ended June 30,                    Six Months Ended June 30,
($ in millions)                                    2021                     2020                  2021                  2020
ACTUARIAL ADJUSTMENTS
Reserve decrease (increase)
Prior accident years                               $    (22.1)              $   (2.7)             $  (44.2)             $  (12.2)
Current accident year                                    15.5                   28.6                  18.4                  30.2
Calendar year actuarial adjustment                 $     (6.6)              $   25.9              $  (25.8)             $   18.0
PRIOR ACCIDENT YEARS DEVELOPMENT
Favorable (unfavorable)
Actuarial adjustment                               $    (22.1)              $   (2.7)             $  (44.2)             $  (12.2)
All other development                                   (50.5)                  30.7                (152.8)               (103.9)
Total development                                  $    (72.6)              $   28.0              $ (197.0)             $ (116.1)
(Increase) decrease to calendar year combined
ratio                                                    (0.7)   pts.            0.3   pts.           (0.9)  pts.           (0.6)  pts.


Total development consists of both actuarial adjustments and "all other
development" on prior accident years. The actuarial adjustments represent the
net changes made by our actuarial staff to both current and prior accident year
reserves based on regularly scheduled reviews. Through these reviews, our
actuaries identify and measure variances in the projected frequency and severity
trends, which allow them to adjust the reserves to reflect the current cost
trends. For our Property business, 100% of catastrophe losses are reviewed
monthly, and any development on catastrophe reserves are included as part of the
actuarial adjustments. For the Personal Lines and Commercial Lines businesses,
development for catastrophe losses for the vehicle businesses would be reflected
in "all other development," discussed below, to the extent they relate to prior
year reserves. We report these actuarial adjustments separately for the current
and prior accident years to reflect these adjustments as part of the total prior
accident years development.
"All other development" represents claims settling for more or less than
reserved, emergence of unrecorded claims at rates different than anticipated in
our incurred but not recorded (IBNR) reserves, and changes in reserve estimates
on specific claims. Although we believe the development from both the actuarial
adjustments and "all other development" generally results from the same factors,
we are unable to quantify the portion of the reserve development that might be
applicable to any one or more of those underlying factors.
Our objective is to establish case and IBNR reserves that are adequate to cover
all loss costs, while incurring minimal variation from the date the reserves are
initially established until losses are fully developed. Our ability to meet this
objective is impacted by many factors. Changes in case law, particularly in PIP
environments, can make it difficult to estimate reserves timely and with minimal
variation. See Note 6 - Loss and Loss Adjustment Expense Reserves, for a more
detailed discussion of our prior
                                       41
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accident years development. We continue to focus on our loss reserve analysis,
attempting to enhance accuracy and to further our understanding of our loss
costs.
Underwriting Expenses
The companywide underwriting expense ratio (i.e., policy acquisition costs and
other underwriting expenses and policyholder credits, net of fees and other
revenues, expressed as a percentage of net premiums earned) decreased 12.5
points for the second quarter and 6.6 points for the first six months of 2021,
compared to the same period in 2020, primarily reflecting 10.7 points and 5.4
points of policyholder credits issued to personal auto customers for the three
and six months ended June 30, 2020. Our Commercial Lines business also saw a
significant decrease in expenses on a year-over-year basis reflecting the work
that we did with our Commercial Lines policyholders and agents to provide
premium credits and billing allowances during the second quarter 2020, which,
along with bad debt exposure, contributed to a 4.0 point and 2.1 point increase
in the Commercial Lines expense ratio for the three and six months ended June
30, 2020, respectively.
Progressive's other underwriting expenses, net of fees and other revenues,
decreased 3% and increased 1% for the three and six months ended June 30, 2021,
compared to the same periods last year. In 2020, we recorded $120.0 million and
$191.0 million for the second quarter and year-to-date periods, respectively, to
increase our allowance for uncollectable accounts, which reflected our
expectation of the additional uncertainty regarding our policyholders' ability
to pay as a result of the economic impacts related to COVID-19 restrictions.
During the second quarter and the first six months of 2021, our advertising
expenditures increased 15% and 20%, compared to the same period last year. We
reevaluated our media budget as part of our actions to respond to the
compression we are seeing in our underwriting profitability and, as a result,
will be reducing our planned spend in certain areas based on performance against
our media and underwriting targets.
                                       42
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C. Growth
For our underwriting operations, we analyze growth in terms of both premiums and
policies. Net premiums written represent the premiums from policies written
during the period, less any premiums ceded to reinsurers. Net premiums earned,
which are a function of the premiums written in the current and prior periods,
are earned as revenue over the life of the policy using a daily earnings
convention. Policies in force, our preferred measure of growth since it removes
the variability due to rate changes or mix shifts, represents all policies under
which coverage was in effect as of the end of the period specified.
                                                      Three Months Ended June 30,                                            Six Months Ended June 30,
($ in millions)                              2021                    2020               % Growth                  2021                   2020               % Growth
NET PREMIUMS WRITTEN
Personal Lines
Agency                              $      4,326.1               $  4,104.7                     5  %       $     8,784.8             $  8,131.2                     8  %
Direct                                     4,574.1                  4,326.8                     6                9,576.8                8,624.2                    11
Total Personal Lines                       8,900.2                  8,431.5                     6               18,361.6               16,755.4                    10
Commercial Lines                           1,986.3                  1,195.1                    66                3,780.4                2,339.2                    62
Property                                     590.9                    513.4                    15                1,064.5                  916.7                    16
Other indemnity                                2.9                        0                       NM                 2.9                      0                       NM
Total underwriting operations       $     11,480.3               $ 10,140.0                    13  %       $    23,209.4             $ 20,011.3                    16  %
NET PREMIUMS EARNED
Personal Lines
Agency                              $      4,220.3               $  3,919.0                     8  %       $     8,318.5             $  7,747.7                     7  %
Direct                                     4,633.9                  4,167.9                    11                9,065.6                8,160.3                    11
Total Personal Lines                       8,854.2                  8,086.9                     9               17,384.1               15,908.0                     9
Commercial Lines                           1,621.8                  1,129.0                    44                3,039.6                2,318.0                    31
Property                                     502.3                    432.7                    16                  974.8                  853.3                    14
Other indemnity1                               4.0                        0                       NM                 4.0                      0                       NM
Total underwriting operations       $     10,982.3               $  9,648.6                    14  %       $    21,402.5             $ 19,079.3                    12  %
NM = Not meaningful
1 Represents Protective Insurance's
run-off business.                                                                                                                    June 30,
(thousands)                                                                                                       2021                   2020               % Growth
POLICIES IN FORCE
Agency auto                                                                                                      8,014.2                7,362.5                     9  %
Direct auto                                                                                                      9,581.3                8,507.6                    13
Total auto                                                                                                      17,595.5               15,870.1                    11
Special lines1                                                                                                   5,211.7                4,790.5                     9
Personal Lines - total                                                                                          22,807.2               20,660.6                    10
Commercial Lines                                                                                                         916.6               775.8                 18
Property                                                                                                               2,655.5             2,336.1                 14
Companywide total                                                                                                     26,379.3            23,772.5                 11  %

1 Includes insurance for motorcycles, watercraft, RVs, and similar items.

Although new policies are necessary to maintain a growing book of business, we
recognize the importance of retaining our current customers as a critical
component of our continued growth. As shown in the tables below, we measure
retention by policy life expectancy. We review our customer retention for our
personal auto products using both a trailing 3-month and a trailing 12-month
period. Although using a trailing 3-month measure does not address seasonality
and can reflect more volatility, this measure is more responsive to current
experience and generally can be an indicator of how our retention rates are
moving. Due to the significant renewal activity during the second quarter 2020,
as a result of suspending cancellations of policies for non-payment, we believe
the year-over-year change in the trailing 3-month policy life expectancy is not
representative of true retention activity and, therefore, we have chosen not to
disclose this measure in the tables below as we do not believe the change is
meaningful.
We continue to disclose our changes in policy life expectancy using a trailing
12-month period. We believe the measure is indicative of recent experience,
mitigates the effect of month-to-month variability, and addresses seasonality.
While this measure was also impacted by suspension of policy cancellations last
year, it was to a much lesser extent.
To analyze growth, we review new policies, rate levels, and the retention
characteristics of our segments.
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D. Personal Lines
The following table shows our year-over-year changes for our Personal Lines
business:
                                                       Growth Over Prior Year
                                                  Quarter                    Year-to-date
                                                        2021     2020             2021   2020
   Applications
   New                                                  7  %     2  %            11  %   2  %
   Renewal                                              9       12               11     11
   Written premium per policy - Auto                   (2)       0          

(3) 0

Policy life expectancy – Auto

   Trailing 3-months                              NM              NM
   Trailing 12-months                                   3        7


NM = Not meaningful
In our Personal Lines business, the increase in both new and renewal
applications during 2021 resulted from increases in both our personal auto and
special lines products. The year-to-date comparisons are impacted by the
depressed growth resulting from the impact of COVID-19 restrictions that were
put in place toward the end of the first quarter 2020.
During the three and six months ended June 30, 2021, our personal auto new
application growth was 9% and 10%, respectively, compared to the same periods
last year. During the second quarter 2021, we continued to see strong renewal
personal auto application growth, in part aided by rate decreases taken
throughout 2020, in addition to the impact from the moratoriums and billing
leniency efforts throughout 2020. During the second quarter 2021, rate increases
were effective in 11 states, which had an average increase of about 5%. In the
aggregate, rate changes for personal auto for the quarter were about 2%. These
rate changes, coupled with tightening underwriting criteria in consumer segments
where losses indicate rate inadequacy, are part of the actions that we are
taking to address the rising trends we are experiencing with auto accident
frequency and severity increasing as people are driving more. We will continue
to manage growth and profitability in accordance with our long-standing goal of
growing as fast as we can as long as we can provide good customer service at or
below a companywide 96 combined ratio on a calendar-year basis.
Our special lines products saw new applications increase 1% and 12% during the
quarter and year-to-date period. Year-over-year growth in the second quarter
2021 was less than the first six months due to the significant application
growth we recorded last year. During the second quarter 2020, we recorded a 22%
increase in new applications due to high demand in our special lines products
reflecting the overall growth in the RV, boat, and motorcycle industries as
consumers focused on activities that promoted social distancing.
At the end of the second quarter 2021, we saw our Robinsons continue to enjoy
year-over-year growth in personal auto policies in force that outpaced our other
consumer segments (Sams, Dianes, and Wrights). New application growth across all
four consumer segments was positive for the quarter. Quote volume increased on a
year-over-year basis for the second quarter in all consumer segments, except the
Wrights, which decreased slightly. During the second quarter 2021, compared to
the same period last year, all consumer segments saw a
flat-to-slightly-increased rate of conversion.
We report our Agency and Direct business results separately as components of our
Personal Lines segment to provide further understanding of our products by
distribution channel. The channel discussions below are focused on personal auto
insurance since this product accounted for 91% and 93% of the Personal Lines
segment net premiums written during the second quarter and the first six months
of 2021, respectively.
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The Agency Business
                                                    Growth Over Prior Year
                                               Quarter                    Year-to-date
                                                     2021     2020             2021   2020
Applications - Auto
New                                                  9  %   (13) %             7  %  (8) %
Renewal                                              6       11                9     10
Written premium per policy - Auto                   (1)       1               (1)     1
Policy life expectancy - Auto
Trailing 3-months                              NM              NM
Trailing 12-months                                   3        9


NM = Not meaningful
The Agency business includes business written by more than 40,000 independent
insurance agencies that represent Progressive, as well as brokerages in New York
and California. During the second quarter and first six months of 2021, the
Agency auto business experienced an increase in new application growth. During
the quarter, we generated new auto application growth in 39 states and the
District of Columbia, including seven of our top 10 largest Agency states. Each
of our consumer segments experienced positive new application and policy in
force growth, except for our Robinson consumer segment where new applications
decreased 2% during the second quarter 2021, compared to last year. Robinsons
new applications were relatively less affected by the pandemic than the other
consumer segments in 2020.
During the second quarter and first six months of 2021, we experienced an
increase in Agency auto quote volume of 6% and 5%, respectively, with a rate of
conversion (i.e., converting a quote to a sale) increase of 3% and 2%, compared
to the same period last year. For the quarter and year-to-date periods, each
consumer segment saw increases in quote volume, except for the Wrights, where
growth decreased slightly in both periods, compared to last year. The current
year increase in part reflected lower quotes and conversion in 2020 due to
shelter-in-place restrictions, which required agents to work from home. Given
the impact of the COVID-19 restrictions on the prior year activity, we felt it
may be helpful to compare the current year to the second quarter and first six
months of 2019. Comparing 2021 to 2019, Agency auto quotes increased 1% and 3%,
for the second quarter and first six months, respectively, and conversion
decreased 6% and 5%.
We experienced an increase in the percentage of bundled Agency auto policies
written for 12-month terms, which have about twice the amount of net premiums
written compared to 6-month policies. At the end of the second quarter 2021, 13%
of our Agency auto policies in force were 12-month policies, compared to about
11% a year earlier. Written premium per policy on new Agency auto business was
up 1% and renewal was down 1%, compared to the second quarter last year. In
response to increased frequency and severity resulting from changes in driving
patterns during 2021, we are taking rate actions to address our underwriting
profitability. During the second quarter 2021, our auto rate changes averaged an
increase of 2% countrywide in our Agency auto business.
The Direct Business
                                                       Growth Over Prior Year
                                                  Quarter                    Year-to-date
                                                        2021     2020             2021   2020
   Applications - Auto
   New                                                 10  %     4  %            13  %   5  %
   Renewal                                             12       15               15     13
   Written premium per policy - Auto                   (4)       0          

(4) 0

Policy life expectancy – Auto

   Trailing 3-months                              NM              NM
   Trailing 12-months                                   3        5


NM = Not meaningful
                                       45
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The Direct business includes business written directly by Progressive on the
Internet, through mobile devices, and over the phone. The Direct business
experienced solid new and renewal application growth during the second quarter
2021, in part reflecting our increase in advertising spend. During the quarter,
we generated new auto application growth in 41 states and the District of
Columbia, including nine of our top 10 largest Direct states. During the
quarter, we grew our new Direct auto applications and policies in force across
all consumer segments, except for our Sam consumer segment, where new
applications decreased 1% during the second quarter 2021, compared to last year.
During the second quarter and first six months of 2021, we experienced a
decrease in Direct auto quote volume of 4% and an increase of 2%, respectively,
while our rate of conversion increased 13% and 11%, compared to the same period
last year. All consumer segments saw a decrease in quotes during the quarter,
with the Robinsons showing the largest decrease of 9%. On a year-over-year
basis, all consumer segments saw flat-to-increased quote growth. Unlike our
Agency auto business, by the end of the second quarter 2020, our Direct auto
business was returning to more normal activity, as evidenced by overall shopping
volume returning to pre-COVID levels. Although the Direct auto business was not
impacted to the same extent as our Agency auto business from the COVID-19
restrictions, comparing the second quarter and first six months of 2021 to the
comparable periods in 2019, Direct auto quotes increased 3% and 7%,
respectively, and conversion increased 11% and 10%.
During the second quarter 2021, written premium per policy for new Direct auto
business decreased 4% and renewal business decreased 3%, reflecting rate
decreases taken during the last 12 months. Consistent with the Agency auto
business, in response to increased frequency and severity during 2021, we are
taking rate actions to support our underwriting profitability in our Direct auto
business. During the second quarter 2021, our auto rate changes averaged an
increase of 2% countrywide in our Direct auto business.
E. Commercial Lines
                                                                                Growth Over Prior Year
                                                                  Quarter                               Year-to-date
                                                                 2021            2020                        2021           2020
Applications - Auto
New                                                             52  %          (10) %                       40  %          (3) %
Renewal                                                          8               7                          10              8
Written premium per policy                                      20              (1)                         16              2
Policy life expectancy - Trailing 12-months                      5          

6

Note: Table excludes our TNC, BOP, and Protective Insurance products.


Our Commercial Lines business operates in five traditional business markets,
which include business auto, for-hire transportation, contractor, for-hire
specialty, and tow markets, primarily written through the agency channel. We
also write transportation network company (TNC) business and business owners
policy (BOP) insurance. With the acquisition of Protective Insurance and its
subsidiaries during the quarter, we expanded our offerings to larger fleet,
workers' compensation coverage for the transportation industry, and affinity
programs.
Similar to our experience in our personal auto businesses, our Commercial Lines
business results for the first half of 2020 were negatively impacted by COVID-19
restrictions, which influenced the demands and general consumer habits for goods
and services provided by our Commercial Lines customers and required that
certain businesses undergo temporary closure.
Commercial Lines experienced very strong new application growth in the second
quarter 2021, reflecting continued improvement in the economy and our
competitiveness in the marketplace. The new application growth during the second
quarter was primarily driven by continued growth in our for-hire transportation
business market target.
During the second quarter 2021, demand in our for-hire transportation product
drove new consumer shopping, which resulted in a 41% increase in quote volume
and an 8% increase in the rate of conversion, compared to the same period last
year.
During the second quarter 2021, volume in our TNC business increased
significantly, compared to the second quarter last year when COVID-19
restrictions were in place. During the quarter, our net premiums written
continued to reflect the increase in rideshare usage we started to experience
during the second half of 2020. In addition, we began writing business in an
additional state for one of our TNC customers in the second quarter 2021.
                                       46
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F. Property
                                                                               Growth Over Prior Year

                                                                 Quarter                               Year-to-date
                                                                 2021           2020                        2021           2020
Applications
New                                                             29  %           4  %                       28  %           5  %
Renewal                                                          8             15                          10             16
Written premium per policy                                       0              0                           0              0
Policy life expectancy - Trailing 12-months                     (6)         

(3)


Our Property business writes residential property insurance for homeowners,
other property owners, and renters, in the agency and direct channels. During
the second quarter 2021, our Property business experienced a solid increase in
new applications, primarily driven by growth in our direct channel and our
Robinsons consumer segment, and a continued rebound in the housing market for
new home sales. Our Property segment was not significantly impacted by COVID-19
restrictions during 2020.
Despite rate increases taken during the last 12 months in our home product,
there was no change in written premium per policy on a year-over-year basis due
to a shift in the mix of business to a larger share of renters policies, which
have lower written premiums per policy. Our policy life expectancy decreased
from the same period last last year, primarily due to targeted rate increases
being made in hail prone states in 2020.
G. Income Taxes
A deferred tax asset or liability is a tax benefit or expense that is expected
to be realized in a future period. At June 30, 2021 and 2020, and December 31,
2020, we reported net federal deferred tax liabilities. At June 30, 2021 and
2020, and December 31, 2020, we had net current income taxes payable of $37.2
million, $889.0 million, and $163.5 million, respectively, which were reported
as part of other liabilities. During the six months ended June 30, 2020, we
deferred $700.0 million of estimated federal tax payments under guidance from
the Internal Revenue Service (IRS). In response to the impact on businesses
caused by COVID-19 restrictions, the IRS postponed the due date of federal
income tax payments that would have otherwise been due between April 1, 2020 and
July 15, 2020.
Our effective tax rate for the three and six months ended June 30, 2021, were
20.9% and 20.8%, respectively, compared to 21.1% and 20.8% for the same periods
last year.
                                       47
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IV. RESULTS OF OPERATIONS - INVESTMENTS
A. Investment Results
Our management philosophy governing the portfolio is to evaluate investment
results on a total return basis. The fully taxable equivalent (FTE) total return
includes recurring investment income, adjusted to a fully taxable amount for
certain securities that receive preferential tax treatment (e.g., municipal
securities), and total net realized, and changes in total net unrealized, gains
(losses) on securities.

The following table summarizes investment results for the periods ended June 30:
                                                                         Three Months                            Six Months
                                                                       2021               2020                  2021               2020
Pretax recurring investment book yield (annualized)                  1.9  %             2.5  %                2.0  %             2.6  %
Weighted average FTE book yield (annualized)                         1.9                2.6                   2.0                2.6
FTE total return:
Fixed-income securities                                              1.1                3.4                   0.2                4.6
Common stocks                                                        7.3               21.5                  20.7               (3.4)
Total portfolio                                                      1.7                4.5                   1.9                3.9



The decrease in the book yield compared to last year reflects investing new cash
from operations and portfolio turnover during the past twelve months in lower
interest rate securities. The decrease in our fixed-income total return reflects
the increase in interest rates during 2021. In our common stock portfolio, the
significant variances year over year, for both quarter and year to date, were
the result of the initial market decline due to COVID concerns in early 2020 and
the subsequent market rebound. In addition, during 2021, we held common stocks,
outside our indexed fund that had significant return volatility.

A further break-down of our FTE total returns for our fixed-income portfolio for
the periods ended June 30, follows:

                                               Three Months             Six Months
                                                  2021       2020        2021        2020
Fixed-income securities:
U.S. Treasury Notes                             0.4  %     0.7  %     (0.7) %      7.0  %
Municipal bonds                                 1.4        3.8         0.4         6.6
Corporate bonds                                 1.3        6.3        (0.3)        5.5

Residential mortgage-backed securities 0.5 4.3 0.9

1.4

Commercial mortgage-backed securities           1.8        4.0         1.0         1.0
Other asset-backed securities                   0.5        2.3         0.7         1.8
Preferred stocks                                6.2        9.2         6.1        (4.1)
Short-term investments                            0        0.4         0.1         0.8


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B. Portfolio Allocation
The composition of the investment portfolio was:
                                                                 % of
                                                  Fair          Total       Duration
($ in millions)                                  Value      Portfolio        (years)        Rating1
June 30, 2021
U.S. government obligations               $ 19,437.7          38.1  %            3.4            AAA
State and local government obligations       2,440.5           4.8               3.8             AA
Corporate debt securities                   10,690.9          21.0               3.3            BBB
Residential mortgage-backed securities         671.3           1.3               1.2            AA-

Commercial mortgage-backed securities 5,708.1 11.2

     3.6             A+
Other asset-backed securities                3,899.0           7.7               1.3             AA
Preferred stocks                             1,845.8           3.7               3.6           BBB-
Short-term investments                       1,710.6           3.3               0.1             A+
Total fixed-income securities               46,403.9          91.1               3.1            AA-
Common equities                              4,538.9           8.9                na             na
Total portfolio2                          $ 50,942.8         100.0  %            3.1            AA-
June 30, 2020
U.S. government obligations               $  9,277.8          21.2  %            3.8            AAA
State and local government obligations       3,574.3           8.2               4.5            AA+
Corporate debt securities                   11,062.5          25.3               4.0           BBB+
Residential mortgage-backed securities         543.0           1.2               0.8             AA

Commercial mortgage-backed securities 5,761.8 13.2

     2.7             AA
Other asset-backed securities                4,354.9           9.9               1.0           AAA-
Preferred stocks                             1,332.7           3.0               3.2           BBB-
Short-term investments                       4,700.5          10.8               0.1           BBB+
Total fixed-income securities               40,607.5          92.8               3.0            AA-
Common equities                              3,170.4           7.2                na             na
Total portfolio2                          $ 43,777.9         100.0  %            3.0            AA-
December 31, 2020
U.S. government obligations               $ 12,740.0          26.8  %            3.3            AAA
State and local government obligations       3,221.8           6.8               4.4             AA
Corporate debt securities                   10,185.2          21.4               3.8            BBB
Residential mortgage-backed securities         509.5           1.1               1.0             AA

Commercial mortgage-backed securities 6,175.1 13.0

      3.2            AA-
Other asset-backed securities                3,784.6           7.9               1.0            AA+
Preferred stocks                             1,642.6           3.5               3.6           BBB-
Short-term investments                       5,218.5          11.0              <0.1             AA
Total fixed-income securities               43,477.3          91.5               2.9            AA-
Common equities                              4,053.0           8.5                na             na
Total portfolio2                          $ 47,530.3         100.0  %            2.9            AA-
na = not applicable


1Represents ratings at period end. Credit quality ratings are assigned by
nationally recognized statistical rating organizations. To calculate the
weighted average credit quality ratings, we weight individual securities based
on fair value and assign a numeric score of 0-5, with non-investment-grade and
non-rated securities assigned a score of 0-1. To the extent the weighted average
of the ratings falls between AAA and AA+, we assign an internal rating of AAA-.
2Our portfolio reflects the effect of net unsettled security transactions; at
June 30, 2021, we had $412.1 million in other liabilities, compared to $277.9
million and $95.5 million at June 30, 2020 and December 31, 2020, respectively.
The total fair value of the portfolio at June 30, 2021 and 2020, and
December 31, 2020, included $3.3 billion, $2.3 billion, and $6.2 billion,
respectively, of securities held in a consolidated, non-insurance subsidiary of
the holding company, net of any unsettled security transactions. During the
first six months of 2021, we used a portion of these investments to pay our
common share dividends and repurchase common shares.

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Our asset allocation strategy is to maintain 0%-25% of our portfolio in Group I
securities, with the balance (75%-100%) of our portfolio in Group II securities.

We define Group I securities to include:
•common equities,
•nonredeemable preferred stocks,
•redeemable preferred stocks, except for 50% of investment-grade redeemable
preferred stocks with cumulative dividends, which are included in Group II, and
•all other non-investment-grade fixed-maturity securities.
Group II securities include:
•short-term securities, and
•all other fixed-maturity securities, including 50% of the investment-grade
redeemable preferred stocks with cumulative dividends.

We believe this asset allocation strategy allows us to appropriately assess the
risks associated with these securities for capital purposes and is in line with
the treatment by our regulators.

The following table shows the composition of our Group I and Group II
securities:
                                                            June 30, 2021                             June 30, 2020                            December 31, 2020
                                                             Fair         % of Total                   Fair         % of Total                      Fair         % of Total
($ in millions)                                             Value          Portfolio                  Value          Portfolio                     Value          Portfolio
Group I securities:
Non-investment-grade fixed maturities            $     1,834.2                3.6  %       $       368.6                0.8  %       $        1,006.4                2.1  %
Redeemable preferred stocks1                              91.7                0.2                   76.0                0.2                      97.3                0.2
Nonredeemable preferred stocks                         1,662.3                3.3                1,180.6                2.7                   1,447.9                3.1
Common equities                                        4,538.9                8.9                3,170.4                7.2                   4,053.0                8.5
Total Group I securities                               8,127.1               16.0                4,795.6               10.9                   6,604.6               13.9
Group II securities:
Other fixed maturities                                41,105.1               80.7               34,281.8               78.3                  35,707.2               75.1
Short-term investments                                 1,710.6                3.3                4,700.5               10.8                   5,218.5               11.0
Total Group II securities                             42,815.7               84.0               38,982.3               89.1                  40,925.7               86.1
Total portfolio                                  $    50,942.8              100.0  %       $    43,777.9              100.0  %       $       47,530.3              100.0  %


1We did not hold any non-investment-grade redeemable preferred stocks at
June 30, 2021 and 2020, or December 31, 2020.
To determine the allocation between Group I and Group II, we use the credit
ratings from models provided by the National Association of Insurance
Commissioners (NAIC) for classifying our residential and commercial
mortgage-backed securities, excluding interest-only securities, and the credit
ratings from nationally recognized statistical rating organizations (NRSRO) for
all other debt securities. NAIC ratings are based on a model that considers the
book price of our securities when assessing the probability of future losses in
assigning a credit rating. As a result, NAIC ratings can vary from credit
ratings issued by NRSROs. Management believes NAIC ratings more accurately
reflect our risk profile when determining the asset allocation between Group I
and Group II securities.

Unrealized Gains and Losses
As of June 30, 2021, our fixed-maturity portfolio had pretax net unrealized
gains, recorded as part of accumulated other comprehensive income, of $638.8
million, compared to $1,257.1 million and $1,206.6 million at June 30, 2020 and
December 31, 2020, respectively. The decrease from June 30, 2020, reflects sales
of securities with unrealized gains in 2020 as well as increasing interest rates
during the first six months of 2021. The decrease from December 31, 2020, was
primarily due to increasing interest rates, which resulted in valuation
decreases in all fixed-maturity sectors, most prominently in the U.S. government
and corporate portfolios.
See Note 2 - Investments for a further break-out of our gross unrealized gains
and losses.

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Holding Period Gains and Losses

The following table provides the gross and net holding period gain (loss)
balance and activity during the six months ended June 30, 2021:

                                                                                                  Net Holding
                                                            Gross Holding     Gross Holding      Period Gains
(millions)                                                   Period Gains     Period Losses          (Losses)
Balance at December 31, 2020
Hybrid fixed-maturity securities                        $         15.2    $            0    $         15.2
Equity securities                                              2,961.5              (6.6)          2,954.9
Total holding period securities                                2,976.7              (6.6)          2,970.1
Current year change in holding period securities
Hybrid fixed-maturity securities                                   0.7              (1.7)             (1.0)
Equity securities                                                493.5               3.2             496.7
Total changes in holding period securities                       494.2               1.5             495.7
Balance at June 30, 2021
Hybrid fixed-maturity securities                                  15.9              (1.7)             14.2
Equity securities                                              3,455.0              (3.4)          3,451.6
Total holding period securities                         $      3,470.9    $ 

(5.1) $ 3,465.8



Changes in holding period gains (losses), similar to unrealized gains (losses)
in our fixed-maturity portfolio, are the result of changes in market performance
as well as sales of securities based on various portfolio management decisions.
Fixed-Income Securities
The fixed-income portfolio is managed internally and includes fixed-maturity
securities, short-term investments, and nonredeemable preferred stocks.
Following are the primary exposures for our fixed-income portfolio. Details of
our policies related to these exposures can be found in the Management's
Discussion and Analysis included in our 2020 Annual Report to Shareholders.
•Interest rate risk - our duration of 3.1 years at June 30, 2021, fell within
our acceptable range of 1.5 to 5 years. The duration distribution of our
fixed-income portfolio, excluding short-term investments, represented by the
interest rate sensitivity of the comparable benchmark U.S. Treasury Notes, was:
   Duration Distribution              June 30, 2021      June 30, 2020      December 31, 2020
   1 year                                   21.9  %            25.5  %                19.5  %
   2 years                                  18.5               14.1                   18.7
   3 years                                  24.4               21.3                   24.9
   5 years                                  17.1               20.1                   18.5
   7 years                                  12.2               10.4                   10.9
   10 years                                  5.9                8.6                    7.5

   Total fixed-income portfolio            100.0  %           100.0  %               100.0  %



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•Credit risk - our credit quality rating of AA- was above our minimum threshold
during the second quarter 2021. The credit quality distribution of the
fixed-income portfolio was:
  Rating                                June 30, 2021      June 30, 2020      December 31, 2020
  AAA                                         55.8  %            45.6  %                53.3  %
  AA                                           7.5                8.9                    9.8
  A                                            9.3               14.5                   11.1
  BBB                                         22.1               29.4                   22.9
  Non-investment grade/non-rated1
  BB                                           4.3                1.2                    2.4
  B                                            0.5                0.2                    0.2
  CCC and lower                                0.1                  0                    0.1
  Non-rated                                    0.4                0.2                    0.2
    Total fixed-income portfolio             100.0  %           100.0  %               100.0  %


1The ratings in the table above are assigned by NRSROs. The non-investment-grade
fixed-income securities based upon our Group I classification represented 5.1%
of the total fixed-income portfolio at June 30, 2021, compared to 1.5% at
June 30, 2020 and 2.9% at December 31, 2020.

•Concentration risk - we did not have any investments in a single issuer, either
overall or in the context of individual assets classes and sectors, that
exceeded our thresholds during the second quarter 2021.
•Prepayment and extension risk - we did not experience significant adverse
prepayment or extension of principal relative to our cash flow expectations in
the portfolio during the second quarter 2021.
•Liquidity risk - our overall portfolio remains very liquid and we believe that
it is sufficient to meet expected near-term liquidity requirements.
•The short-to-intermediate duration of our portfolio provides a source of
liquidity, as we expect approximately $2.0 billion, or 7.8%, of principal
repayment from our fixed-income portfolio, excluding U.S. Treasury Notes and
short-term investments, during the remainder of 2021. Cash from interest and
dividend payments provides an additional source of recurring liquidity.
•The duration of our U.S. government obligations, which are included in the
fixed-income portfolio, was comprised of the following at June 30, 2021:
                                                      Fair       Duration
                  ($ in millions)                    Value        (years)
                  U.S. Treasury Notes
                  Less than one year          $  1,426.1         0.6
                  One to two years               4,882.0         1.6
                  Two to three years             5,489.7         2.6
                  Three to five years            4,308.4         4.3
                  Five to seven years            2,376.2         6.6
                  Seven to ten years               955.3         8.9
                  Total U.S. Treasury Notes   $ 19,437.7         3.4




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ASSET-BACKED SECURITIES
Included in the fixed-income portfolio are asset-backed securities (ABS), which
were comprised of the following at the balance sheet dates listed:
                                                                                             % of Asset-
                                                  Fair          Net Unrealized                    Backed           Duration                        Rating
($ in millions)                                  Value          Gains (Losses)                Securities            (years)              (at period end)1
June 30, 2021
Residential mortgage-backed securities   $    671.3          $          3.5                       6.5  %           1.2                                

AA-

Commercial mortgage-backed securities       5,708.1                    79.9                      55.6              3.6                                 A+
Other asset-backed securities               3,899.0                    33.1                      37.9              1.3                                 AA
Total asset-backed securities            $ 10,278.4          $        116.5                     100.0  %           2.6                                AA-
June 30, 2020
Residential mortgage-backed securities   $    543.0          $          2.0                       5.1  %           0.8                                 

AA

Commercial mortgage-backed securities       5,761.8                    33.3                      54.0              2.7                                 AA
Other asset-backed securities               4,354.9                    41.6                      40.9              1.0                               AAA-
Total asset-backed securities            $ 10,659.7          $         76.9                     100.0  %           1.9                                AA+
December 31, 2020
Residential mortgage-backed securities   $    509.5          $          6.2                       4.9  %           1.0                                 

AA

Commercial mortgage-backed securities       6,175.1                   132.5                      59.0              3.2                                AA-
Other asset-backed securities               3,784.6                    39.6                      36.1              1.0                                AA+
Total asset-backed securities            $ 10,469.2          $        178.3                     100.0  %           2.3                                 AA

1 The credit quality ratings in the table above are assigned by NRSROs.

Residential Mortgage-Backed Securities (RMBS) The following table details the
credit quality rating and fair value of our RMBS, along with the loan
classification and a comparison of the fair value at June 30, 2021, to our
original investment value (adjusted for returns of principal, amortization, and
write-downs):
                                          Residential Mortgage-Backed Securities (at June 30, 2021)
($ in millions)
Rating1                                     Non-Agency            Agency          Government/GSE2             Total                % of Total
AAA                                      $    268.5          $   95.5          $         3.7            $  367.7                      54.8  %
AA                                             86.8                 0                    0.6                87.4                      13.1
A                                              44.6                 0                      0                44.6                       6.6
BBB                                            51.9                 0                      0                51.9                       7.7
Non-investment grade/non-rated:
BB                                             90.9                 0                      0                90.9                      13.5
B                                               4.0                 0                      0                 4.0                       0.6
CCC and lower                                   7.8                 0                      0                 7.8                       1.2
Non-rated                                      17.0                 0                      0                17.0                       2.5
Total fair value                         $    571.5          $   95.5          $         4.3            $  671.3                     100.0  %
Increase (decrease) in value                    0.8  %           (0.3) %                 6.0    %            0.7  %


1The credit quality ratings in the table above are assigned by NRSROs; when we
assign the NAIC ratings for our RMBS, $48.3 million of our non-investment-grade
securities are rated investment-grade and classified as Group II, and $71.4
million, or 10.6% of our total RMBS, are not rated by the NAIC and are
classified as Group I.
2The securities in this category are insured by a Government Sponsored Entity
(GSE) and/or collateralized by mortgage loans insured by the Federal Housing
Administration (FHA) or the U.S. Department of Veteran Affairs (VA).

In the residential mortgage-backed sector, our portfolio consists of deals that
are backed by high-credit quality borrowers or have strong structural
protections through underlying loan collateralization. During the first six
months of 2021, we selectively added to this sector.

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Commercial Mortgage-Backed Securities (CMBS) The following table details the
credit quality rating and fair value of our CMBS, along with a comparison of the
fair value at June 30, 2021, to our original investment value (adjusted for
returns of principal, amortization, and write-downs):
                                         Commercial Mortgage-Backed Securities (at June 30, 2021)
($ in millions)
Rating1                                                  Multi-Borrower         Single-Borrower            Total                 % of Total
AAA                                                    $       330.3          $      1,510.2          $ 1,840.5                     32.2  %
AA                                                               3.1                 1,325.8            1,328.9                     23.3
A                                                                  0                 1,131.0            1,131.0                     19.8
BBB                                                                0                 1,026.6            1,026.6                     18.0
Non-investment grade/non-rated:
BB                                                                 0                   380.7              380.7                      6.7
B                                                                0.4                       0                0.4                        0

Total fair value                                       $       333.8          $      5,374.3          $ 5,708.1                    100.0  %
Increase (decrease) in value                                     4.2  %                  1.2  %             1.4  %


1The credit quality ratings in the table above are assigned by NRSROs; when we
assign the NAIC ratings for our CMBS, $34.3 million of our non-investment-grade
securities are rated investment-grade and classified as Group II, and $346.8
million, or 6.1% of our total CMBS, are not rated by the NAIC and are classified
as Group I.

During the second quarter 2021, we were active in purchasing
single-asset/single-borrower securities in both new issue and secondary markets,
in addition to focusing on adding to some of our existing positions in the
high-credit quality office and life sciences sectors. The strong market
indicators from the end of the year continued during the second quarter, with
new issues in high demand by investors and credit spreads narrowing.

During the second quarter 2021, we sold some of our AAA-rated securities, in
both the fixed-rate and floating-rate sectors and continued scaling back on
positions that met or exceeded our performance objectives, or were no longer
core to our strategy.
Other Asset-Backed Securities (OABS) The following table details the credit
quality rating and fair value of our OABS, along with a comparison of the fair
value at June 30, 2021, to our original investment value (adjusted for returns
of principal, amortization, and write-downs):
                                                            Other Asset-Backed Securities (at June 30, 2021)
($ in millions)                                          Collateralized Loan                        Whole Business                                                   % of
Rating                                      Automobile           Obligations   Student Loan        Securitizations     Equipment       Other        Total           Total
AAA                                       $   813.2    $         647.5       $     113.8    $              0       $    465.6    $  244.2    $ 2,284.3            58.6  %
AA                                            219.4              271.2              16.2                   0            132.2        19.1        658.1            16.9
A                                              38.4                1.0               9.5                   0            134.1       100.4        283.4             7.2
BBB                                             7.2               30.6                 0               594.7                0        22.3        654.8  

16.8

Non-investment grade/non-rated:
BB                                                0                3.0                 0                   0                0        15.4         18.4             0.5

    Total fair value                      $ 1,078.2    $         953.3       $     139.5    $          594.7       $    731.9    $  401.4    $ 3,899.0           100.0  %
Increase (decrease) in value                    0.4  %             0.1  %            1.6  %              2.4  %           1.2  %      1.0  %       0.9  %



During the second quarter 2021, we selectively added to our automobile,
equipment, whole business securitization, and other OABS sectors mostly through
new issuances as we viewed spreads, and potential returns, across this sector to
be less attractive compared to previous quarters. Our allocation to
collateralized loan obligation securities increased during the quarter, as we
perceived the sector provided better return potential than the other OABS
sectors, primarily focusing on higher credit tranched securities in the capital
structure.
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MUNICIPAL SECURITIES
The following table details the credit quality rating of our municipal
securities at June 30, 2021, without the benefit of credit or bond insurance:

          Municipal Securities (at June 30, 2021)
(millions)            General        Revenue
Rating            Obligations          Bonds          Total
AAA            $      690.0      $   243.6      $   933.6
AA                    494.8          733.0        1,227.8
A                         0          277.8          277.8
BBB                       0            1.0            1.0
Non-rated                 0            0.3            0.3
Total          $    1,184.8      $ 1,255.7      $ 2,440.5



Included in revenue bonds were $493.0 million of single-family housing revenue
bonds issued by state housing finance agencies, of which $347.5 million were
supported by individual mortgages held by the state housing finance agencies and
$145.5 million were supported by mortgage-backed securities.

Of the programs supported by mortgage-backed securities, approximately 25% were
collateralized by Fannie Mae and Freddie Mac mortgages; the remaining 75% were
collateralized by Ginnie Mae mortgages, which are fully guaranteed by the U.S.
government. Of the programs supported by individual mortgages held by the state
housing finance agencies, the overall credit quality rating was AA+. Most of
these mortgages were supported by the Federal Housing Administration, the U.S.
Department of Veterans Affairs, or private mortgage insurance providers.

As spreads tightened during the quarter, we continued to reduce our allocation
to the municipal sector. Our sales were primarily in revenue bonds, purchased in
2020, when spreads were wider and offered attractive performance opportunities.
As mutual funds continued receiving strong inflows from investors, the municipal
sector has performed well. At current valuations, municipal bonds are less
attractive to us on a relative value basis.
CORPORATE SECURITIES
The following table details the credit quality rating of our corporate
securities at June 30, 2021:
                                                                Corporate Securities (at June 30, 2021)
(millions)                                                                            Financial
Rating                                   Consumer    Industrial     Communication      Services       Agency     Technology     Basic Materials     Energy         Total
AAA                                  $       0    $        0    $            0    $     40.8    $     7.0    $       1.7    $              0    $     0    $     49.5
AA                                        97.9           1.8               0.5         119.7            0           18.5                   0       16.5         254.9
A                                        438.3         216.1             244.9       1,101.5            0          157.6               132.6       99.4       2,390.4
BBB                                    2,228.7       1,583.2             205.3       1,234.4            0          637.0                37.2      672.9       6,598.7
Non-investment grade/non-rated:
BB                                       497.2         153.7             127.4         142.0            0          132.5                37.0       43.5       1,133.3
B                                        179.1          20.3               4.3           4.0            0            4.3                   0          0         212.0
CCC and lower                             50.6             0                 0             0            0              0                   0          0          50.6
Non-rated                                  1.5             0                 0             0            0              0                   0          0           1.5
Total fair value                     $ 3,493.3    $  1,975.1    $        582.4    $  2,642.4    $     7.0    $     951.6    $          206.8    $ 832.3    $ 10,690.9



During the second quarter 2021, our corporate portfolio saw a modest increase as
credit spreads continued to tighten; however, we saw fewer opportunities to add
to the portfolio. We also shortened the maturity profile of the corporate
portfolio to 3.3 years at June 30, 2021, compared to 3.7 years at March 31,
2021. Activity during the quarter was primarily a combination of selling some of
our longer maturity holdings we believed either met or exceeded our performance
objective, or no longer met our future investment strategy and selectively
increased our allocation to high-yield securities that we believed would benefit
from the continuation of the economic recovery.

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Overall, our corporate securities, as a percentage of the fixed-income
portfolio, has remained consistent since the end of the first quarter 2021. At
June 30, 2021, the portfolio was approximately 23% of our fixed-income
portfolio, compared to 24% at March 31, 2021.
PREFERRED STOCKS - REDEEMABLE AND NONREDEEMABLE
The table below shows the exposure break-down by sector and rating at June 30,
2021:
                                                 Preferred Stocks (at June 30, 2021)
                                                         Financial Services
(millions)                                       U.S.      Foreign
Rating                                          Banks        Banks     Insurance      Other     Industrials     Utilities        Total
A                                        $    50.8    $       0    $        0    $     0    $          0    $        0    $    50.8
BBB                                          939.1            0         130.1       46.9           132.2             0      1,248.3
Non-investment grade/non-rated:
BB                                           235.0         80.3             0          0            25.6          42.5        383.4

Non-rated                                        0            0          35.0       93.9            34.4             0        163.3
Total fair value                         $ 1,224.9    $    80.3    $    165.1    $ 140.8    $      192.2    $     42.5    $ 1,845.8


The majority of our preferred securities have fixed-rate dividends until a call
date and then, if not called, generally convert to floating-rate dividends. The
interest rate duration of our preferred securities is calculated to reflect the
call, floor, and floating-rate features. Although a preferred security will
remain outstanding if not called, its interest rate duration will reflect the
variable nature of the dividend. Our non-investment-grade preferred stocks were
all with issuers that maintain investment-grade senior debt ratings.
We also face the risk that dividend payments on our preferred stock holdings
could be deferred for one or more periods or skipped entirely. As of June 30,
2021, all of our preferred securities continued to pay their dividends in full
and on time. Approximately 84% of our preferred stock securities pay dividends
that have tax preferential characteristics, while the balance pay dividends that
are fully taxable.

During the second quarter 2021, our preferred stock portfolio produced a
positive return as equities continued to rally and treasury yields moved lower.
Common Equities
Common equities, as reported on the balance sheets, were comprised of the
following:

($ in millions)                                     June 30, 2021                             June 30, 2020                         December 31, 2020
Common stocks                            $     4,527.3               99.7  %       $     3,170.1              100.0  %       $  4,049.9               99.9  %
Other risk investments                            11.6                0.3                    0.3                  0                 3.1                0.1
  Total common equities                  $     4,538.9              100.0  %       $     3,170.4              100.0  %       $  4,053.0              100.0  %


The majority of our common stock portfolio is an indexed portfolio, which
consists of individual holdings selected based on their contribution to the
correlation with the Russell 1000 Index. We held 837 out of 1,024, or 82%, of
the common stocks comprising the index at June 30, 2021, which made up 96% of
the total market capitalization of the index. At June 30, 2021 and December 31,
2020, the year-to-date total return, based on GAAP income, was within our
targeted tracking error, which is +/- 50 basis points, while at June 30, 2020,
the year-to-date total return, based on GAAP income, was outside the targeted
tracking error.
The other risk investments consist of limited partnership interests. During the
second quarter 2021, we funded $1.0 million on a partnership investment and have
an open funding commitment of $6.1 million at June 30, 2021 on this investment.
In addition, $7.4 million in partnership investments were assumed as part of our
acquisition of Protective Insurance.
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Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995: Investors are cautioned that certain statements in this report not based
upon historical fact are forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995. These statements often use words such
as "estimate," "expect," "intend," "plan," "believe," and other words and terms
of similar meaning, or are tied to future periods, in connection with a
discussion of future operating or financial performance. Forward-looking
statements are based on current expectations and projections about future
events, and are subject to certain risks, assumptions and uncertainties that
could cause actual events and results to differ materially from those discussed
herein. These risks and uncertainties include, without limitation, uncertainties
related to:

•our ability to underwrite and price risks accurately and to charge adequate
rates to policyholders;
•our ability to establish accurate loss reserves;
•the impact of severe weather, other catastrophe events and climate change;
•the effectiveness of our reinsurance programs;
•the highly competitive nature of property-casualty insurance markets;
•whether we innovate effectively and respond to our competitors' initiatives;
•whether we effectively manage complexity as we develop and deliver products and
customer experiences;
•how intellectual property rights could affect our competitiveness and our
business operations;
•whether we adjust claims accurately;
•our ability to maintain a recognized and trusted brand;
•our ability to attract, develop and retain talent and maintain appropriate
staffing levels;
•compliance with complex laws and regulations;
•litigation challenging our business practices, and those of our competitors and
other companies;
•the impacts of a security breach or other attack involving our computer systems
or the systems of one or more of our vendors;
•the secure and uninterrupted operation of the facilities, systems, and business
functions that are critical to our business;
•the success of our efforts to develop new products or enter into new areas of
business and navigate related risks;
•our continued ability to send and accept electronic payments;
•the possible impairment of our goodwill or intangible assets;
•the performance of our fixed-income and equity investment portfolios;
•the potential elimination of, or change in, the London Interbank Offered Rate;
•our continued ability to access our cash accounts and/or convert securities
into cash on favorable terms;
•the impact if one or more parties with which we enter into significant
contracts or transact business fail to perform;
•legal restrictions on our insurance subsidiaries' ability to pay dividends to
The Progressive Corporation;
•limitations on our ability to pay dividends on our common shares under the
terms of our outstanding preferred shares;
•our ability to obtain capital when necessary to support our business and
potential growth;
•evaluations by credit rating and other rating agencies;
•the variable nature of our common share dividend policy;
•whether our investments in certain tax-advantaged projects generate the
anticipated returns;
•the impact from not managing to short-term earnings expectations in light of
our goal to maximize the long-term value of the enterprise;
•impacts from the outbreak of the novel coronavirus, or COVID-19, and the
restrictions put in place to help slow and/or stop the spread of the virus; and
•other matters described from time to time in our releases and publications, and
in our periodic reports and other documents filed with the United States
Securities and Exchange Commission, including, without limitation, the Risk
Factors section of our Annual Report on Form 10-K for the year ending December
31, 2020.

In addition, investors should be aware that generally accepted accounting
principles prescribe when a company may reserve for particular risks, including
litigation exposures. Accordingly, results for a given reporting period could be
significantly affected if and when we establish reserves for one or more
contingencies. Also, our regular reserve reviews may result in adjustments of
varying magnitude as additional information regarding claims activity becomes
known. Reported results, therefore, may be volatile in certain accounting
periods.
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