July 10 (Bloomberg) -- Progressive Corp., the fourth- largest U.S. auto insurer, said quarterly net income rose for the first time since 2006 on increased premium revenue and profits from the sale of securities.

Second-quarter net income rose 16 percent $250.1 million, or 37 cents a share, from $215.5 million, or 32 cents, in the year-earlier period, snapping a streak of nine straight quarterly declines, the Mayfield Village, Ohio-based company said in a statement today. Profit excluding the investment gain was 36 cents a share, matching the average estimate of 12 analysts surveyed by Bloomberg.

Chief Executive Officer Glenn Renwick has been buying U.S. Treasuries and other securities with low returns to limit writedowns after a slump in more volatile holdings cost $1.45 billion before taxes in 2008. The insurer had an investment gain of $15.9 million before taxes, compared with a loss of $44.6 a year earlier.

“In retrospect it was very prudent,” to reposition the portfolio, Renwick told investors last month. “No one is saying the skies are clear and there are sunny days ahead, but it certainly doesn’t seem to be quite as bad as it was.”

The second quarter investment gain includes a $13.7 million profit in June. The insurer earned $43.7 million selling securities last month and wrote down holdings by $30 million, primarily on losses on structured debt. Book value per share, a measure of assets minus liabilities, gained 15 percent from March 31 to $7.24.

Progressive fell 11 cents to $14.32 at 4:15 p.m. in New York Stock Exchange composite trading. The stock has declined 24 percent in the past year, compared with the 39 percent decline in the 24-stock KBW Insurance Index.

Buffett’s Berkshire

Progressive has fallen behind Geico Corp. at Warren Buffett’s Berkshire Hathaway Inc. in the past year as the two auto insurers compete for new policyholders. Geico, now the third-largest auto insurer in the U.S., continued to add customers faster than Progressive this year, while larger rival Allstate Corp. said the number of drivers buying its standard coverage fell in the first three months of 2009.

Progressive, which had previously reported results for April and May, said today it added about 29,000 auto policyholders in June. The number of consumers with coverage of motorcycles, mobile homes, boats, Segway Inc. scooters and other so-called specialty vehicles rose by about 30,000.

Revenue Gain

Premium revenue rose 0.9 percent to $3.44 billion from a year earlier as the insurer increased the price of coverage in some states and added customers. The company had a profit margin of 7.4 cents on every dollar it collected in premiums for the quarter, compared with a 6.4 cent margin in last year’s second quarter as claims costs fell.

Friedman Billings Ramsey Group Inc. analyst Bijan Moazami said last month that he favored Allstate over Progressive for its higher profit margins over the past two years and its lower price relative to its earnings.

“Allstate’s auto insurance franchise is better than Progressive’s auto insurance business,” Moazami said in a note to investors last month when he downgraded Progressive shares to “market perform” from “outperform.” No. 1 State Farm Mutual Automobile Insurance Co. is owned by policyholders and only reports results once a year.

Renwick said last month that U.S. drivers have been weighing whether to switch their auto coverage as they seek to trim expenses amid the recession.

Taking It to the Street

Progressive joined competitors State Farm and Allstate in raising prices for coverage in some states this year, as car owners halted a trend of driving less. Travel on U.S. roads rose by 1.4 billion miles in April from the same month a year earlier, to 249.5 billion miles, the Federal Highway Administration said in June. The agency has yet to report results for May and June.

Fewer miles driven last year resulted in a falling frequency of claims for auto insurers. “Everybody in the industry saw a pretty precipitous decline in frequency, starting May, June, July last year,” Progressive Chief Financial Officer Brian Domeck said last month. “Even though it’s increasing over 2008, it’s about on par with 2007 frequencies.”

The company cut 280 jobs in May, dismissing about 2 percent of the insurer’s claims department staff across the U.S., after investment losses weighed on results.

To contact the reporter on this story: Erik Holm in New York at eholm2@bloomberg.net.

Last Updated: July 10, 2009 16:28 EDT