How Crucial is Managing Underwriting Expenses to PGR's Profits?

The Progressive Corporation’s PGR profitability is derived from how effectively this leading auto insurer manages underwriting expenses. Underwriting expenses include policy acquisition costs and other expenses related to underwriting. 

Policy acquisition costs contribute more than 50% to underwriting expenses.  Costs incurred for policy acquisitions directly fuel top-line growth by expanding the total number of active insurance policies across its various business segments. Policies in force have been exhibiting steady growth over the years.

When underwriting expenses are well controlled, Progressive’s combined ratio, the measure of underwriting profitability for an insurer, improves too, with the loss ratio being a component of the combined ratio. Underwriting expenses have constituted one-fifth of total expenses in the last three years and varied from 17-20% of total revenues in the same time frame. 

Its data-driven underwriting and automation help manage underwriting expenses. Progressive’s strong cost control strengthens its key advantages in a competitive, price-driven market, enabling more accurate pricing, sharper customer segmentation, and faster policy growth.

Underwriting expenses have gone up in the last two years, reflecting higher volumes of business. However, they are not just a cost item but an important driver of PGR’s profitability. Effective management strengthens underwriting results, fuels investment firepower and sustains Progressive’s long-term intrinsic value growth.

What About PGR’s Peers?

Underwriting expenses are central to Berkshire Hathaway’s BRK.B underwriting profitability as well. It has gone up in the last two years, reflecting higher volumes of business. However, Underwriting expenses are not just a cost item but an important driver of BRK.B’s profitability. Effective management strengthens underwriting results, supports float stability, fuels investment firepower and sustains Berkshire’s long-term intrinsic value growth.

The same holds true for Allstate Corporation ALL. As a top personal lines insurer, Allstate depends on controlling underwriting expenses to sustain profitability. When Allstate manages these effectively, it strengthens underwriting margins, ensures earnings stability and secures long-term value creation for shareholders.

PGR’s Price Performance

Shares of PGR have lost 6% year to date, underperforming the industry.

PGR’s Expensive Valuation

PGR trades at a price-to-book value ratio of 3.73, above the industry average of 1.5. But it carries a Value Score of B.

Estimates Movement for PGR

The Zacks Consensus Estimate for PGR’s fourth-quarter 2025 EPS has moved 4.5% north, while that for first-quarter 2026 has moved down 0.9% over the past 30 days. The same for full-year 2025 and 2026 has moved 2.5% and 01% down, respectively, in the same time frame.
 

The consensus estimates for PGR’s 2025 revenues and EPS indicate year-over-year increases. The consensus estimate for 2026 revenues indicates a year-over-year increase but the same for EPS indicates a year-over-year decline.

PGR stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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