Progressive (PGR)

Insurance company Progressive (NYSE:PGR) met Wall Street’s revenue expectations in Q3 CY2025, with sales up 14.2% year on year to $22.51 billion. Its GAAP profit of $4.45 per share was 16% below analysts’ consensus estimates.

Company Overview

Starting as a small auto insurance company in 1937 with a pioneering focus on high-risk drivers, Progressive (NYSE:PGR) is a major auto, property, and commercial insurance provider that offers policies through independent agents, online platforms, and over the phone.

Property & Casualty (P&C) insurers protect individuals and businesses against financial loss from damage to property or from legal liability. This is a cyclical industry, and the sector benefits when there is 'hard market', characterized by strong premium rate increases that outpace loss and cost inflation, resulting in robust underwriting margins. The opposite is true in a 'soft market'. Interest rates also matter, as they determine the yields earned on fixed-income portfolios. On the other hand, P&C insurers face a major secular headwind from the increasing frequency and severity of catastrophe losses due to climate change. Furthermore, the liability side of the business is pressured by 'social inflation'—the trend of rising litigation costs and larger jury awards.

Progressive's main competitors include other large personal and commercial insurers such as State Farm, Allstate (NYSE:ALL), GEICO (owned by Berkshire Hathaway, NYSE:BRK.A, NYSE:BRK.B), Liberty Mutual, Farmers Insurance, and Travelers (NYSE:TRV).

In general, insurance companies earn revenue from three primary sources. The first is the core insurance business itself, often called underwriting and represented in the income statement as premiums earned. The second source is investment income from investing the “float” (premiums collected upfront not yet paid out as claims) in assets such as fixed-income assets and equities. The third is fees from various sources such as policy administration, annuities, or other value-added services. Luckily, Progressive’s revenue grew at an incredible 15.2% compounded annual growth rate over the last five years. Its growth surpassed the average insurance company and shows its offerings resonate with customers, a great starting point for our analysis.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. Progressive’s annualized revenue growth of 20.5% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Progressive’s year-on-year revenue growth was 14.2%, and its $22.51 billion of revenue was in line with Wall Street’s estimates.

Net premiums earned made up 94.6% of the company’s total revenue during the last five years, meaning Progressive lives and dies by its underwriting activities because non-insurance operations barely move the needle.

Net premiums earned commands greater market attention due to its reliability and consistency, whereas investment and fee income are often seen as more volatile revenue streams that fluctuate with market conditions.

When insurers sell policies, they protect themselves from extremely large losses or an outsized accumulation of losses with reinsurance (insurance for insurance companies). Net premiums earned are therefore net of what’s ceded to reinsurers as a risk mitigation and transfer strategy.

Progressive’s net premiums earned has grown at a 15.7% annualized rate over the last five years, much better than the broader insurance industry and in line with its total revenue.

When analyzing Progressive’s net premiums earned over the last two years, we can see that growth accelerated to 19.9% annually. This performance was similar to its total revenue.

Progressive’s net premiums earned came in at $20.85 billion this quarter, up a hearty 13.9% year on year. But this wasn’t enough juice to meet Wall Street Consensus estimates.

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For insurance companies, we look at the combined ratio rather than the operating expenses and margins that define sectors such as consumer, tech, and industrials.

Combined ratio = (costs of underwriting + what an insurer pays out in claims) / net premiums earned. If a company boasts a combined ratio under 100%, it is underwriting profitably. If above 100%, it is losing money on its core operations.

Given the calculation, a lower expense ratio is better. Over the last four years, Progressive’s combined ratio has swelled by 8.2 percentage points, going from 95.4% to 87.2%. It has also improved by 10 percentage points on a two-year basis, showing its expenses have consistently grown at a slower rate than revenue. This typically signals prudent management.

Progressive’s combined ratio came in at 89.5% this quarter, falling short of analysts’ expectations by 340 basis points (100 basis points = 1 percentage point). This result was in line with the same quarter last year.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Progressive’s remarkable 16.2% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Progressive, its two-year annual EPS growth of 98.9% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q3, Progressive reported EPS of $4.45, up from $3.97 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Progressive’s full-year EPS of $18.23 to shrink by 9.9%.

Insurance companies are balance sheet businesses, collecting premiums upfront and paying out claims over time. The float–premiums collected but not yet paid out–are invested, creating an asset base supported by a liability structure. Book value per share (BVPS) captures this dynamic by measuring these assets (investment portfolio, cash, reinsurance recoverables) less liabilities (claim reserves, debt, future policy benefits). BVPS is essentially the residual value for shareholders.

We therefore consider BVPS very important to track for insurers and a metric that sheds light on business quality. While other (and more commonly known) per-share metrics like EPS can sometimes be lumpy due to reserve releases or one-time items and can be managed or skewed while still following accounting rules, BVPS reflects long-term capital growth and is harder to manipulate.

Progressive’s BVPS grew at an incredible 15% annual clip over the last five years. BVPS growth has also accelerated recently, growing by 44.7% annually over the last two years from $28.89 to $60.45 per share.

Over the next 12 months, Consensus estimates call for Progressive’s BVPS to grow by 28.6% to $61.57, elite growth rate.

The debt-to-equity ratio is a widely used measure to assess a company's balance sheet health. A higher ratio means that a business aggressively financed its growth with debt. This can result in higher earnings (if the borrowed funds are invested profitably) but also increases risk.

If debt levels are too high, there could be difficulties in meeting obligations, especially during economic downturns or periods of rising interest rates if the debt has variable-rate payments.

Progressive currently has $10.27 billion of debt and $35.45 billion of shareholder's equity on its balance sheet, and over the past four quarters, has averaged a debt-to-equity ratio of 0.3×. We think this is safe and raises no red flags. In general, we’re comfortable with any ratio below 1.0× for an insurance business. Anything below 0.5× is a bonus.

Return on equity (ROE) is a crucial yardstick for insurance companies, measuring their ability to generate returns on the capital provided by shareholders. Insurers that consistently deliver superior ROE tend to create more value for their investors over time through strategic capital allocation and shareholder-friendly policies.

Over the last five years, Progressive has averaged an ROE of 22.9%, exceptional for a company operating in a sector where the average shakes out around 12.5% and those putting up 20%+ are greatly admired. This shows Progressive has a strong competitive moat.

We struggled to find many positives in these results. Its EPS missed and its book value per share fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 4.8% to $228.80 immediately following the results.

Updated: December 3, 2025 at 11:38 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Progressive.

Progressive is one of the best insurance companies out there. For starters, its revenue growth was exceptional over the last five years. And while its projected EPS for the next year is lacking, its BVPS growth was exceptional over the last five years. Additionally, Progressive’s stellar ROE suggests it has been a well-run company historically.

Progressive’s P/B ratio based on the next 12 months is 3.8x. Expectations are high given its premium multiple, but we’ll happily own Progressive as its fundamentals illustrate it’s clearly doing something special. It’s often wise to hold investments like this for at least three to five years, as the power of long-term compounding negates short-term price swings that can accompany high valuations.

Wall Street analysts have a consensus one-year price target of $257.44 on the company (compared to the current share price of $227.18).