July 12 (Bloomberg) -- Progressive Corp., the fourth-largest U.S. auto insurer, said profit fell 52 percent to the lowest since 2008 after claims costs increased as health expenses climbed and the company posted an investment loss. The shares declined in New York trading.
Second-quarter net income dropped to $118.6 million, or 19 cents per share, from $245.2 million, or 38 cents, a year earlier, the Mayfield Village, Ohio-based company said in a statement today. Operating profit, which excludes some investment results, was about 20 cents a share, missing the 27-cent average estimate of 22 analysts surveyed by Bloomberg.
“Severity is clearly going up,” Chief Executive Officer Glenn Renwick said at an investor meeting last month, referring to the cost per claim. “We’re not the only ones noticing that.”
Renwick, 57, is seeking to boost sales and improve underwriting profit through the firm’s Snapshot technology, which collects vehicle data and offers discounts to drivers with the best habits. He has said margins may struggle to meet targets as the company copes with fluctuations in claim frequency and cost.
The combined ratio, a measure of how much of each premium dollar is spent on claims and expenses, rose to 97.6 from 93.4 a year earlier, missing Renwick’s target of 96.
The insurer fell 5 percent to $19.53 at 4:15 p.m., the biggest drop since August. Progressive had climbed 5.3 percent this year through yesterday, compared with a 1.3 percent gain in the 24-company KBW Insurance Index.
Book value, a measure of assets minus liabilities, rose to $10.32 a share, from $10.23 on March 31. The insurer had a net realized loss on securities of $4.7 million, compared with a gain of $26 million a year earlier.
The increase in medical expenses may be linked to claimants seeking more treatment or higher emergency costs, Renwick said in an interview at Bloomberg headquarters.
“Those things are so subtle on an individual level, but you see it in the macro,” he said July 9. An increase in new car sales and rising prices of used cars may also be driving up claims costs, he said.
Progressive has benefited along with Berkshire Hathaway Inc.’s Geico unit as car owners shun agents and buy coverage online. The number of individual auto customers who used direct channels like the Internet or telephones to buy Progressive coverage expanded 7 percent to about 4 million. Premium revenue increased 7 percent to $4 billion.
Policyholder-owned State Farm Mutual Automobile Insurance Co. is the largest U.S car insurer, followed by Northbrook, Illinois-based Allstate Corp. and Geico. Progressive, which posts results monthly, had previously announced data for April and May.
Progressive said catastrophes cost $107 million in the three months ended June 30, compared with about $125 million a year earlier.
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