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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2023
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                     to                     
Commission File Number: 001-09518
THE PROGRESSIVE CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 34-0963169
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
6300 Wilson Mills Road,Mayfield Village, Ohio 44143
(Address of principal executive offices) (Zip Code)
(440) 461-5000
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report) 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Shares, $1.00 Par ValuePGRNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes   No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Shares, $1.00 par value: 585,366,448 outstanding at March 31, 2023



PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
The Progressive Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(unaudited)
Three Months Ended March 31,20232022
(millions — except per share amounts)  
Revenues
Net premiums earned$13,533.1 $11,802.9 
Investment income419.6 242.2 
Net realized gains (losses) on securities:
Net realized gains (losses) on security sales(30.3)(54.5)
Net holding period gains (losses) on securities104.4 (388.6)
Net impairment losses recognized in earnings(2.3)(2.2)
Total net realized gains (losses) on securities71.8 (445.3)
Fees and other revenues206.2 174.0 
Service revenues72.5 67.7 
Total revenues14,303.2 11,841.5 
Expenses
Losses and loss adjustment expenses10,624.0 8,858.4 
Policy acquisition costs1,115.8 963.4 
Other underwriting expenses1,857.9 1,506.3 
Investment expenses5.5 5.7 
Service expenses82.3 63.2 
Interest expense63.3 54.3 
Total expenses13,748.8 11,451.3 
Net Income
Income before income taxes554.4 390.2 
Provision for income taxes106.5 76.3 
Net income447.9 313.9 
Other Comprehensive Income (Loss)
Changes in:
Total net unrealized gains (losses) on fixed-maturity securities603.2 (1,426.9)
Net unrealized losses on forecasted transactions0.1 0.2 
Foreign currency translation adjustment0.2 
Other comprehensive income (loss)603.3 (1,426.5)
Comprehensive income (loss)$1,051.2 $(1,112.6)
Computation of Earnings Per Common Share
Net income$447.9 $313.9 
Less: Preferred share dividends1
7.3 6.7 
Net income available to common shareholders$440.6 $307.2 
Average common shares outstanding - Basic584.9 584.3 
Net effect of dilutive stock-based compensation2.1 2.0 
Total average equivalent common shares - Diluted587.0 586.3 
Basic: Earnings per common share$0.75 $0.53 
Diluted: Earnings per common share $0.75 $0.52 
1 Changed to a floating dividend rate. See Note 1 – Basis of Presentation for further discussion.
See notes to consolidated financial statements.
1


The Progressive Corporation and Subsidiaries
Consolidated Balance Sheets
(unaudited)
 March 31,December 31,
(millions — except per share amounts)202320222022
Assets
Available-for-sale securities, at fair value:
Fixed maturities (amortized cost: $53,123.9, $48,082.7, and $50,264.0)
$50,289.2 $46,316.4 $46,651.9 
Short-term investments (amortized cost: $2,524.1, $529.9, and $2,861.7)
2,524.1 529.9 2,861.7 
Total available-for-sale securities52,813.3 46,846.3 49,513.6 
Equity securities, at fair value:
Nonredeemable preferred stocks (cost: $1,197.7, $1,545.5, and $1,364.2)
1,078.8 1,527.5 1,213.2 
Common equities (cost: $740.5, $1,281.7, and $826.1)
2,794.3 4,812.6 2,821.5 
Total equity securities3,873.1 6,340.1 4,034.7 
Total investments56,686.4 53,186.4 53,548.3 
Cash and cash equivalents273.7 272.7 203.5 
Restricted cash and cash equivalents14.9 14.6 17.4 
Total cash, cash equivalents, restricted cash, and restricted cash equivalents288.6 287.3 220.9 
Accrued investment income299.5 193.4 282.5 
Premiums receivable, net of allowance for credit losses of $340.9, $276.2, and $343.3
12,411.4 10,519.0 10,416.9 
Reinsurance recoverables5,616.2 5,025.0 5,832.1 
Prepaid reinsurance premiums269.6 455.1 295.5 
Deferred acquisition costs1,626.8 1,407.7 1,544.4 
Property and equipment, net of accumulated depreciation of $1,576.2, $1,455.7, and $1,551.1
949.0 1,104.4 1,034.0 
Goodwill227.9 452.7 227.9 
Intangible assets, net of accumulated amortization of $164.0, $142.2, and $158.6
80.9 102.7 86.3 
Net federal deferred income taxes1,057.0 370.5 1,131.5 
Other assets893.8 825.4 844.7 
Total assets$80,407.1 $73,929.6 $75,465.0 
Liabilities and Shareholders’ Equity
Unearned premiums$19,844.3 $16,991.4 $17,293.6 
Loss and loss adjustment expense reserves31,026.4 26,754.2 30,359.3 
Accounts payable, accrued expenses, and other liabilities6,278.7 6,747.2 5,532.8 
Debt1
6,389.3 6,385.6 6,388.3 
Total liabilities63,538.7 56,878.4 59,574.0 
Serial Preferred Shares (authorized 20.0)
Serial Preferred Shares, Series B, no par value (cumulative, liquidation preference $1,000 per share) (authorized, issued, and outstanding 0.5)
493.9 493.9 493.9 
Common shares, $1.00 par value (authorized 900.0; issued 797.6, including treasury shares of 212.2, 212.7, and 212.7)
585.4 584.9 584.9 
Paid-in capital1,907.7 1,788.6 1,893.0 
Retained earnings16,080.1 15,569.6 15,721.2 
Accumulated other comprehensive income (loss):
Net unrealized gains (losses) on fixed-maturity securities(2,183.1)(1,370.7)(2,786.3)
Net unrealized losses on forecasted transactions(14.4)(14.7)(14.5)
Foreign currency translation adjustment(1.2)(0.4)(1.2)
Total accumulated other comprehensive income (loss) (2,198.7)(1,385.8)(2,802.0)
Total shareholders’ equity16,868.4 17,051.2 15,891.0 
Total liabilities and shareholders’ equity$80,407.1 $73,929.6 $75,465.0 
1 Consists of long-term debt. See Note 4 – Debt for further discussion.
See notes to consolidated financial statements.
2


The Progressive Corporation and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
(unaudited)
 
Three Months Ended March 31,20232022
(millions — except per share amounts)
Serial Preferred Shares, No Par Value
Balance, beginning of period$493.9 $493.9 
Balance, end of period493.9 493.9 
Common Shares, $1.00 Par Value
Balance, beginning of period584.9 584.4 
Treasury shares purchased(0.2)(0.3)
Net restricted equity awards issued/vested0.7 0.8 
Balance, end of period585.4 584.9 
Paid-In Capital
Balance, beginning of period1,893.0 1,772.9 
Amortization of equity-based compensation15.9 17.3 
Treasury shares purchased(0.8)(0.8)
Net restricted equity awards issued/vested(0.7)(0.8)
Reinvested dividends on restricted stock units0.3 
Balance, end of period1,907.7 1,788.6 
Retained Earnings
Balance, beginning of period15,721.2 15,339.7 
Net income447.9 313.9 
Treasury shares purchased(31.7)(27.6)
Cash dividends declared on common shares ($0.10 and $0.10 per share)
(58.5)(58.4)
Reinvested dividends on restricted stock units(0.3)
Other, net1.5 2.0 
Balance, end of period16,080.1 15,569.6 
Accumulated Other Comprehensive Income (Loss)
Balance, beginning of period(2,802.0)40.7 
Other comprehensive income (loss)603.3 (1,426.5)
Balance, end of period(2,198.7)(1,385.8)
Total shareholders’ equity$16,868.4 $17,051.2 
There are 5.0 million Voting Preference Shares authorized; no such shares have been issued.
See notes to consolidated financial statements.
3


The Progressive Corporation and Subsidiaries
Consolidated Statements of Cash Flows        
(unaudited)
Three Months Ended March 31,20232022
(millions)
Cash Flows From Operating Activities
Net income$447.9 $313.9 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation68.0 71.1 
Amortization of intangible assets5.4 14.6 
Net amortization (accretion) of fixed-income securities(5.0)27.0 
Amortization of equity-based compensation15.9 17.3 
Net realized (gains) losses on securities(71.8)445.3 
Net (gains) losses on disposition of property and equipment16.5 3.3 
Changes in:
Premiums receivable(1,994.5)(1,119.5)
Reinsurance recoverables215.9 (44.5)
Prepaid reinsurance premiums25.9 2.5 
Deferred acquisition costs(82.4)(52.1)
Income taxes106.6 76.2 
Unearned premiums2,550.7 1,375.6 
Loss and loss adjustment expense reserves667.1 590.1 
Accounts payable, accrued expenses, and other liabilities565.5 545.1 
Other, net(82.2)236.4 
Net cash provided by operating activities2,449.5 2,502.3 
Cash Flows From Investing Activities
Purchases:
Fixed maturities(6,119.5)(11,453.4)
Equity securities(17.8)(74.3)
Sales:
Fixed maturities2,202.6 5,889.9 
Equity securities277.3 59.2 
Maturities, paydowns, calls, and other:
Fixed maturities976.0 1,177.6 
Equity securities25.1 39.3 
Net (purchases) sales of short-term investments360.8 413.1 
Net change in unsettled security transactions57.2 212.6 
Purchases of property and equipment(43.2)(73.0)
Sales of property and equipment4.3 6.5 
Net cash used in investing activities(2,277.2)(3,802.5)
Cash Flows From Financing Activities
Dividends paid to common shareholders(58.5)(58.5)
Dividends paid to preferred shareholders(13.4)(13.4)
Acquisition of treasury shares for restricted stock tax liabilities(32.7)(28.7)
Net proceeds from debt issuances1,486.0 
Net cash provided by (used in) financing activities(104.6)1,385.4 
Increase in cash, cash equivalents, restricted cash, and restricted cash equivalents67.7 85.2 
Cash, cash equivalents, restricted cash, and restricted cash equivalents – January 1220.9 202.1 
Cash, cash equivalents, restricted cash, and restricted cash equivalents – March 31
$288.6 $287.3 
See notes to consolidated financial statements.
4


The Progressive Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
1. BASIS OF REPORTING AND ACCOUNTING
The accompanying consolidated financial statements include the accounts of The Progressive Corporation, our wholly owned insurance and non-insurance subsidiaries and affiliates in which we have a controlling financial interest (Progressive).
The consolidated financial statements reflect all normal recurring adjustments that, in the opinion of management, were necessary for a fair statement of the results for the interim periods presented. The results of operations for the period ended March 31, 2023, are not necessarily indicative of the results expected for the full year. These consolidated financial statements and the notes thereto should be read in conjunction with Progressive’s audited financial statements and accompanying notes included in Exhibit 13 to our Annual Report on Form 10-K for the year ended December 31, 2022 (2022 Annual Report to Shareholders).
Insurance Premiums and Receivables
We perform analyses to evaluate our premiums receivable for expected credit losses. See the 2022 Annual Report to Shareholders for a discussion on our premiums receivable allowance for credit loss policy. The following table summarizes changes in our allowance for credit loss exposure on our premiums receivable:
Three Months Ended March 31,
(millions)20232022
Allowance for credit losses, beginning of period$343.3 $280.4 
Increase in allowance1
116.9 93.9 
Write-offs2
(119.3)(98.1)
Allowance for credit losses, end of period$340.9 $276.2 
1 Represents the incremental increase in other underwriting expenses.
2 Represents the portion of allowance that is reversed when premiums receivable are written off. Premiums receivable balances are written off once we have exhausted our collection efforts.
Property and Equipment
Included in other assets in the consolidated balance sheets are “held for sale” property. When property is transferred to held for sale, the property is written down to its fair value less estimated costs to sell the property. At March 31, 2023 and 2022, and December 31, 2022, we had held for sale property of $67.8 million, $20.2 million, and $48.7 million, respectively.

Earnings Per Share
Net income is reduced by preferred share dividends to determine net income available to common shareholders, and is used in our calculation of the per common share amounts. Beginning March 15, 2023, the annual dividend rate for our Series B Preferred Shares switched to a floating rate. The floating nature of the dividend rate will impact the amount of the adjustment required to calculate net income available to common shareholders. See Note 9 – Dividends for further discussion.

New Accounting Standards
During the first quarter 2023, the Financial Accounting Standards Board issued an Accounting Standards Update (ASU), which permits an election to amortize the cost of tax equity investments to the provision for income taxes if certain conditions are met. Currently, these investments are accounted for under the equity method of accounting. This ASU will be effective for fiscal years (including interim periods within those fiscal years) beginning after December 15, 2023 (2024 for calendar-year companies). If elected, this standard must be applied on either a modified retrospective or a retrospective basis. We are still evaluating whether we will elect this new standard, however, we do not expect this standard to have a material impact on our financial position or results of operations
5


2.  INVESTMENTS
The following tables present the composition of our investment portfolio by major security type. Our securities are reported in our consolidated balance sheets at fair value. The changes in fair value for our fixed-maturity securities (other than hybrid securities) are reported as a component of accumulated other comprehensive income (loss), net of deferred income taxes, in our consolidated
balance sheets. The net holding period gains (losses) reported below represent the inception-to-date changes in fair value for the hybrid and equity securities. The changes in the net holding period gains (losses) between periods are recorded as a component of net realized gains (losses) on securities in our consolidated statements of comprehensive income.
($ in millions)CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Net
Holding
Period
Gains
(Losses)
Fair
Value
% of
Total
Fair
Value
March 31, 2023
Available-for-sale securities:
Fixed maturities:
U.S. government obligations$28,490.9 $68.8 $(1,209.6)$$27,350.1 48.3 %
State and local government obligations2,222.4 0.9 (161.7)2,061.6 3.6 
Foreign government obligations16.9 (1.1)15.8 0.1 
Corporate debt securities11,195.8 45.6 (525.4)(34.7)10,681.3 18.8 
Residential mortgage-backed securities655.0 0.2 (16.3)(8.9)630.0 1.1 
Commercial mortgage-backed securities5,252.6 1.6 (751.2)4,503.0 7.9 
Other asset-backed securities5,087.8 1.8 (222.5)(1.3)4,865.8 8.6 
Redeemable preferred stocks202.5 (5.2)(15.7)181.6 0.3 
Total fixed maturities53,123.9 118.9 (2,893.0)(60.6)50,289.2 88.7 
Short-term investments2,524.1 2,524.1 4.5 
       Total available-for-sale securities55,648.0 118.9 (2,893.0)(60.6)52,813.3 93.2 
Equity securities:
Nonredeemable preferred stocks1,197.7 (118.9)1,078.8 1.9 
Common equities740.5 2,053.8 2,794.3 4.9 
       Total equity securities1,938.2 1,934.9 3,873.1 6.8 
  Total portfolio1
$57,586.2 $118.9 $(2,893.0)$1,874.3 $56,686.4 100.0 %
6


($ in millions)CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Net
Holding
Period
Gains
(Losses)
Fair
Value
% of
Total
Fair
Value
March 31, 2022
Available-for-sale securities:
Fixed maturities:
U.S. government obligations$20,399.6 $5.9 $(876.7)$$19,528.8 36.7 %
State and local government obligations2,236.9 4.4 (97.1)2,144.2 4.0 
Foreign government obligations18.3 (0.9)17.4 0.1 
Corporate debt securities11,590.2 31.2 (315.5)(25.9)11,280.0 21.2 
Residential mortgage-backed securities962.3 1.1 (5.1)(7.2)951.1 1.8 
Commercial mortgage-backed securities7,296.4 2.2 (380.1)6,918.5 13.0 
Other asset-backed securities5,359.9 1.1 (103.6)(1.5)5,255.9 9.9 
Redeemable preferred stocks219.1 0.1 (1.8)3.1 220.5 0.4 
Total fixed maturities48,082.7 46.0 (1,780.8)(31.5)46,316.4 87.1 
Short-term investments529.9 529.9 1.0 
       Total available-for-sale securities48,612.6 46.0 (1,780.8)(31.5)46,846.3 88.1 
Equity securities:
Nonredeemable preferred stocks1,545.5 (18.0)1,527.5 2.9 
Common equities1,281.7 3,530.9 4,812.6 9.0 
       Total equity securities2,827.2 3,512.9 6,340.1 11.9 
  Total portfolio1
$51,439.8 $46.0 $(1,780.8)$3,481.4 $53,186.4 100.0 %


7


($ in millions)CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Net
Holding
Period
Gains
(Losses)
Fair
Value
% of
Total
Fair
Value
December 31, 2022
Available-for-sale securities:
Fixed maturities:
U.S. government obligations$26,770.7 $1.4 $(1,604.7)$$25,167.4 47.0 %
State and local government obligations2,180.0 (202.9)1,977.1 3.7 
Foreign government obligations16.8 (1.3)15.5 0.1 
Corporate debt securities10,125.8 9.8 (676.1)(46.8)9,412.7 17.6 
Residential mortgage-backed securities696.1 0.3 (17.5)(12.1)666.8 1.2 
Commercial mortgage-backed securities5,446.0 1.5 (784.0)4,663.5 8.7 
Other asset-backed securities4,826.0 0.9 (260.5)(1.8)4,564.6 8.5 
Redeemable preferred stocks202.6 (4.5)(13.8)184.3 0.3 
Total fixed maturities50,264.0 13.9 (3,551.5)(74.5)46,651.9 87.1 
Short-term investments2,861.7 2,861.7 5.4 
       Total available-for-sale securities53,125.7 13.9 (3,551.5)(74.5)49,513.6 92.5 
Equity securities:
Nonredeemable preferred stocks1,364.2 (151.0)1,213.2 2.3 
Common equities826.1 1,995.4 2,821.5 5.2 
       Total equity securities2,190.3 1,844.4 4,034.7 7.5 
  Total portfolio1
$55,316.0 $13.9 $(3,551.5)$1,769.9 $53,548.3 100.0 %
1 At March 31, 2023 and 2022, we had $22.8 million and $356.0 million, respectively, of net unsettled security purchase transactions included in other liabilities, compared to $34.4 million included in other assets at December 31, 2022.
The total fair value of the portfolio at March 31, 2023 and 2022, and December 31, 2022, included $4.1 billion, $5.1 billion, and $4.4 billion, respectively, of securities held in a consolidated, non-insurance subsidiary of the holding company, net of unsettled security transactions.

At March 31, 2023, bonds and certificates of deposit in the principal amount of $604.4 million were on deposit to meet state insurance regulatory requirements. We did not hold any securities of any one issuer, excluding U.S. government obligations, with an aggregate cost or fair value exceeding 10% of total shareholders’ equity at March 31, 2023 or 2022, or December 31, 2022. At March 31, 2023, we did not hold any debt securities that were non-income producing during the preceding 12 months.
Short-Term Investments Our short-term investments may include commercial paper and other investments that are expected to mature or are redeemable within one year.
We did not enter into any repurchase or reverse repurchase transactions during the first quarter 2023, but did invest in repurchase transactions during 2022; however, we did not have any open positions at March 31, 2023 and 2022, or December 31, 2022. To the extent we enter into repurchase or reverse repurchase transactions, consistent with past practice, we would elect not to offset these transactions and would report them on a gross basis in our consolidated balance sheets, despite the option to elect to offset these transactions as long as they were with the same counterparty and subject to an enforceable master netting arrangement.

Hybrid Securities Certain securities in our fixed-maturity portfolio are accounted for as hybrid securities because they contain embedded derivatives that are not deemed to be clearly and closely related to the host investments. These securities are reported at fair value:
 March 31,
(millions)20232022Dec. 31, 2022
Fixed Maturities:
Corporate debt securities$548.6 $535.8 $535.4 
Residential mortgage-backed securities482.1 721.7 509.6 
Other asset-backed securities33.8 75.0 42.0 
Redeemable preferred stocks132.8 152.1 134.7 
Total hybrid securities$1,197.3 $1,484.6 $1,221.7 

Since the embedded derivatives (e.g., change-in-control put option, debt-to-equity conversion, or any other feature unrelated to the credit quality or risk of default of the issuer that could impact the amount or timing of our expected future cash flows) do not have observable intrinsic values, we use the fair value option to record the changes in fair value of these securities through income as a component of net realized gains or losses.
8


Fixed Maturities The composition of fixed maturities by maturity at March 31, 2023, was:
(millions)CostFair Value
Less than one year$7,941.7 $7,706.0 
One to five years31,574.9 30,132.2 
Five to ten years13,505.5 12,353.0 
Ten years or greater101.8 98.0 
Total$53,123.9 $50,289.2 
Asset-backed securities are classified in the maturity distribution table based upon their projected cash flows. All other securities that do not have a single maturity date are reported based upon expected average maturity. Contractual maturities may differ from expected maturities because the issuers of the securities may have the right to call or prepay obligations.
Gross Unrealized Losses The following tables show the composition of gross unrealized losses by major security type and by the length of time that individual securities have been in a continuous unrealized loss position:
 Total No. of Sec.Total
Fair
Value
Gross
Unrealized
Losses
Less than 12 Months12 Months or Greater
($ in millions)No. of Sec.Fair
Value
Unrealized
Losses
No. of Sec.Fair
 Value
Unrealized
Losses
March 31, 2023
U.S. government obligations148 $19,446.8 $(1,209.6)40 $5,938.5 $(127.5)108 $13,508.3 $(1,082.1)
State and local government obligations343 1,943.6 (161.7)72 350.7 (7.4)271 1,592.9 (154.3)
Foreign government obligations15.8 (1.1)15.8 (1.1)
Corporate debt securities390 8,129.9 (525.4)93 2,239.3 (75.5)297 5,890.6 (449.9)
Residential mortgage-backed securities43 141.7 (16.3)13 10.0 (0.4)30 131.7 (15.9)
Commercial mortgage-backed securities220 4,484.5 (751.2)11 53.4 (1.5)209 4,431.1 (749.7)
Other asset-backed securities267 4,391.9 (222.5)61 884.8 (6.2)206 3,507.1 (216.3)
Redeemable preferred stocks48.8 (5.2)10.6 (1.4)38.2 (3.8)
Total fixed maturities1,416 $38,603.0 $(2,893.0)291 $9,487.3 $(219.9)1,125 $29,115.7 $(2,673.1)

 Total No. of Sec.Total
Fair
Value
Gross
Unrealized
Losses
Less than 12 Months12 Months or Greater
($ in millions)No. of Sec.Fair
Value
Unrealized
Losses
No. of Sec.Fair
 Value
Unrealized
Losses
March 31, 2022
U.S. government obligations116 $18,478.0 $(876.7)97 $15,467.4 $(649.4)19 $3,010.6 $(227.3)
State and local government obligations290 1,767.7 (97.1)279 1,627.3 (82.1)11 140.4 (15.0)
Foreign government obligations17.4 (0.9)17.4 (0.9)
Corporate debt securities416 7,830.6 (315.5)407 7,623.8 (294.2)206.8 (21.3)
Residential mortgage-backed securities32 201.8 (5.1)26 189.0 (4.1)12.8 (1.0)
Commercial mortgage-backed securities264 6,584.4 (380.1)245 6,133.0 (327.9)19 451.4 (52.2)
Other asset-backed securities269 4,927.4 (103.6)263 4,873.8 (102.7)53.6 (0.9)
Redeemable preferred stocks37.4 (1.8)26.4 (0.3)11.0 (1.5)
Total fixed maturities1,391 $39,844.7 $(1,780.8)1,320 $35,958.1 $(1,461.6)71 $3,886.6 $(319.2)

9


 Total No. of Sec.Total
Fair
Value
Gross
Unrealized
Losses
Less than 12 Months12 Months or Greater
($ in millions)No. of Sec.Fair
Value
Unrealized
Losses
No. of Sec.Fair
 Value
Unrealized
Losses
December 31, 2022
U.S. government obligations160 $24,802.5 $(1,604.7)90 $17,327.2 $(699.2)70 $7,475.3 $(905.5)
State and local government obligations348 1,948.8 (202.9)239 1,124.2 (76.8)109 824.6 (126.1)
Foreign government obligations15.5 (1.3)15.5 (1.3)
Corporate debt securities422 8,449.6 (676.1)285 5,717.6 (426.1)137 2,732.0 (250.0)
Residential mortgage-backed securities45 151.0 (17.5)27 65.1 (6.8)18 85.9 (10.7)
Commercial mortgage-backed securities226 4,651.1 (784.0)99 1,702.0 (192.1)127 2,949.1 (591.9)
Other asset-backed securities262 4,247.8 (260.5)130 2,144.8 (100.9)132 2,103.0 (159.6)
Redeemable preferred stocks49.6 (4.5)38.5 (3.1)11.1 (1.4)
Total fixed maturities1,468 $44,315.9 $(3,551.5)873 $28,119.4 $(1,505.0)595 $16,196.5 $(2,046.5)
As of March 31, 2023, we had four securities that had their credit ratings downgraded during the quarter, with a combined fair value of $28.8 million and an unrealized loss of $1.7 million.
A review of the securities in an unrealized loss position indicated that the issuers were current with respect to their interest obligations and that there was no evidence of deterioration of the current cash flow projections that would indicate we would not receive the remaining principal at maturity.
Allowance For Credit and Uncollectible Losses We are required to measure the amount of potential credit losses for all fixed-maturity securities in an unrealized loss position. We did not record any allowances for credit losses or any write-offs for amounts deemed to be uncollectible during the first three months of 2023 or 2022, and did not have a material credit loss allowance balance as of March 31, 2023 and 2022, or December 31, 2022. We considered several factors and inputs related to the individual securities as part of our analysis. The methodology and significant inputs used to measure the amount of credit losses in our portfolio included:

current performance indicators on the business model or underlying assets (e.g., delinquency rates, foreclosure rates, and default rates);
credit support (via current levels of subordination);
historical credit ratings; and
updated cash flow expectations based upon these performance indicators.
In order to determine the amount of credit loss, if any, we initially reviewed securities in a loss position to determine whether it was likely that we would be required, or intended, to sell any of the securities prior to the recovery of their respective cost bases (which could be maturity). If we were likely to, or intended to, sell prior to a potential recovery, we would write off the unrealized loss. For those securities that we determined we were not likely to, or did not intend to, sell prior to a potential recovery, we
performed additional analysis to determine if the loss was credit related. For securities subject to credit related loss, we calculated the net present value (NPV) of the cash flows expected (i.e., expected recovery value) using the current book yield for each security. The NPV was then compared to the security’s current amortized value to determine if a credit loss existed. In the event that the NPV was below the amortized value, and the amount was determined to be material individually, or in aggregate, a credit loss would be deemed to exist, and either an allowance for credit losses would be created, or if an allowance currently existed, either a recovery of the previous allowance, or an incremental loss, would be recorded to net realized gains (losses) on securities.
As of March 31, 2023 and 2022, and December 31, 2022, we believe none of the unrealized losses were related to material credit losses on any specific securities, or in the aggregate. We continue to expect all the securities in our portfolio to pay their principal and interest obligations.
In addition, we reviewed our accrued investment income outstanding on those securities in an unrealized loss position at March 31, 2023 and 2022, and December 31, 2022, to determine if the accrued interest amounts were determined to be uncollectible. Based on our analysis, we believe the issuers have sufficient liquidity and capital reserves to meet their current interest, and future principal, obligations and, therefore, did not write off any accrued income as uncollectible at March 31, 2023 and 2022, or December 31, 2022.


10



Realized Gains (Losses) The components of net realized gains (losses) for the three months ended March 31, were:
 Three Months
(millions)20232022
Gross realized gains on security sales
Available-for-sale securities:
U.S. government obligations$3.8 $3.3 
Corporate debt securities0.1 4.5 
Residential mortgage-backed securities0.1 
Other asset-backed securities0.1 
Total available-for-sale securities3.9 8.0 
Equity securities:
Nonredeemable preferred stocks0.1 17.3 
Common equities132.0 0.5 
Total equity securities132.1 17.8 
   Subtotal gross realized gains on security sales136.0 25.8 
Gross realized losses on security sales
Available-for-sale securities:
U.S. government obligations(11.5)(69.2)
State and local government obligations(1.0)
Corporate debt securities(20.4)(7.7)
Commercial mortgage-backed securities(34.5)
Other asset-backed securities(0.2)(0.1)
Short-term investments(0.1)
Total available-for-sale securities(66.7)(78.0)
Equity securities:
Nonredeemable preferred stocks(101.0)(1.7)
Common equities(11.8)(0.6)
Total equity securities(112.8)(2.3)
   Subtotal gross realized losses on security sales(179.5)(80.3)
Net realized gains (losses) on security sales
Available-for-sale securities:
U.S. government obligations(7.7)(65.9)
State and local government obligations(1.0)
Corporate debt securities(20.3)(3.2)
Residential mortgage-backed securities0.1 
Commercial mortgage-backed securities(34.5)
Other asset-backed securities(0.2)
Short-term investments(0.1)
Total available-for-sale securities(62.8)(70.0)
Equity securities:
Nonredeemable preferred stocks(100.9)15.6 
Common equities120.2 (0.1)
Total equity securities19.3 15.5 
  Subtotal net realized gains (losses) on security sales(43.5)(54.5)
Other assets
Gain13.2 
Impairment(2.3)(2.2)
Subtotal net realized gains (losses) on other assets10.9 (2.2)
Net holding period gains (losses)
Hybrid securities13.9 (39.0)
Equity securities90.5 (349.6)
  Subtotal net holding period gains (losses)104.4 (388.6)
     Total net realized gains (losses) on securities$71.8 $(445.3)







11


Realized gains (losses) on securities sold are computed using the first-in-first-out method. For the first three months of 2023, the gross gains in common equities reflected sales of securities, as part of our plan to incrementally reduce risk in the portfolio in response to the potential of a more difficult economic environment over the near term. The gross loss from the fixed-maturity sales reflected the continued rise in interest rates throughout 2022, which resulted in valuation declines for most of our available-for-sale securities. In addition, during the first quarter 2023, we selectively sold securities, which were primarily corporate debt securities and commercial
mortgage-backed securities. The gross loss incurred in our nonredeemable preferred stocks is primarily related to the sale of certain of our holdings in U. S. bank preferred stocks. The other asset gain for 2023, related to proceeds received as the result of litigation in conjunction with three renewable energy investments we made from 2016 through 2018 (the original investments were previously written down in full). The other asset impairment loss was recorded as a result of our investment in a federal new markets tax credit fund, which was entered into during the second quarter 2021, and is reported in other assets in the consolidated balance sheets.
The following table reflects our holding period realized gains (losses) recognized on equity securities held at the respective quarter ends:
Three Months
(millions)20232022
Total net gains (losses) recognized during the period on equity securities$109.8 $(334.1)
Less: Net gains (losses) recognized on equity securities sold during the period19.3 15.5 
Net holding period gains (losses) recognized during the period on equity securities held at period end$90.5 $(349.6)
Net Investment Income The components of net investment income for the three months ended March 31, were: 
Three Months
(millions)20232022
Available-for-sale securities:
   Fixed maturities:
U.S. government obligations$163.2 $51.4 
State and local government obligations10.6 9.2 
Foreign government obligations0.1 0.1 
Corporate debt securities83.6 68.1 
Residential mortgage-backed securities9.2 4.8 
Commercial mortgage-backed securities50.0 43.3 
Other asset-backed securities48.5 25.1 
Redeemable preferred stocks2.9 2.5 
Total fixed maturities368.1 204.5 
   Short-term investments24.7 0.4 
    Total available-for-sale securities392.8 204.9 
Equity securities:
Nonredeemable preferred stocks15.1 18.2 
Common equities11.7 19.1 
    Total equity securities26.8 37.3 
           Investment income419.6 242.2 
           Investment expenses(5.5)(5.7)
         Net investment income$414.1 $236.5 
On a year-over-year basis, investment income (interest and dividends) increased 73% and the recurring investment book yield increased 50%, compared to the same periods last year, primarily due to an increase in interest rates on
floating-rate securities in our portfolio and investing new cash and cash from maturities in higher interest rate securities given the rising interest rate environment.


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3. FAIR VALUE
We have categorized our financial instruments, based on the degree of subjectivity inherent in the method by which they are valued, into a fair value hierarchy of three levels, as follows:
Level 1: Inputs are unadjusted, quoted prices in active markets for identical instruments at the measurement date (e.g., U.S. government obligations, which are continually priced on a daily basis, active exchange-traded equity securities, and certain short-term securities).
Level 2: Inputs (other than quoted prices included within Level 1) that are observable for the instrument either directly or indirectly (e.g., certain corporate and municipal bonds and certain preferred stocks). This includes: (i) quoted prices for similar instruments in active markets, (ii) quoted prices for identical or similar instruments in markets that are not active, (iii) inputs other than quoted prices that are
observable for the instruments, and (iv) inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3: Inputs that are unobservable. Unobservable inputs reflect our subjective evaluation about the assumptions market participants would use in pricing the financial instrument (e.g., certain structured securities and privately held investments).
Determining the fair value of the investment portfolio is the responsibility of management. As part of that responsibility, we evaluate whether a market is distressed or inactive in determining the fair value for our portfolio. We review certain market level inputs to evaluate whether sufficient activity, volume, and new issuances exist to create an active market. Based on this evaluation, we concluded that there was sufficient activity related to the sectors and securities for which we obtained valuations.
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The composition of the investment portfolio by major security type and our outstanding debt was:
 Fair Value 
(millions)Level 1Level 2Level 3TotalCost
March 31, 2023
Fixed maturities:
U.S. government obligations$27,350.1 $$$27,350.1 $28,490.9 
State and local government obligations2,061.6 2,061.6 2,222.4 
Foreign government obligations15.8 15.8 16.9 
Corporate debt securities10,681.3 10,681.3 11,195.8 
Subtotal27,350.1 12,758.7 40,108.8 41,926.0 
Asset-backed securities:
Residential mortgage-backed630.0 630.0 655.0 
Commercial mortgage-backed4,503.0 4,503.0 5,252.6 
Other asset-backed4,865.8 4,865.8 5,087.8 
Subtotal asset-backed securities9,998.8 9,998.8 10,995.4 
Redeemable preferred stocks:
Financials40.0 40.0 43.5 
Utilities8.8 8.8 10.5 
Industrials9.6 123.2 132.8 148.5 
Subtotal redeemable preferred stocks9.6 172.0 181.6 202.5 
Total fixed maturities27,359.7 22,929.5 50,289.2 53,123.9 
Short-term investments2,524.1 2,524.1 2,524.1 
    Total available-for-sale securities29,883.8 22,929.5 52,813.3 55,648.0 
Equity securities:
Nonredeemable preferred stocks:
Financials40.0 884.5 67.4 991.9 1,102.7 
Utilities70.5 70.5 80.0 
Industrials16.4 16.4 15.0 
Subtotal nonredeemable preferred stocks40.0 955.0 83.8 1,078.8 1,197.7 
Common equities:
Common stocks2,755.7 18.3 2,774.0 720.2 
Other risk investments20.3 20.3 20.3 
Subtotal common equities2,755.7 38.6 2,794.3 740.5 
    Total equity securities2,795.7 955.0 122.4 3,873.1 1,938.2 
Total portfolio$32,679.5 $23,884.5 $122.4 $56,686.4 $57,586.2 
Debt$$5,881.0 $$5,881.0 $6,389.3 
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 Fair Value 
(millions)Level 1Level 2Level 3TotalCost
March 31, 2022
Fixed maturities:
U.S. government obligations$19,528.8 $$$19,528.8 $20,399.6 
State and local government obligations2,144.2 2,144.2 2,236.9 
Foreign government obligations17.4 17.4 18.3 
Corporate debt securities11,280.0 11,280.0 11,590.2 
Subtotal19,528.8 13,441.6 32,970.4 34,245.0 
Asset-backed securities:
Residential mortgage-backed951.1 951.1 962.3 
Commercial mortgage-backed6,918.5 6,918.5 7,296.4 
Other asset-backed5,255.9 5,255.9 5,359.9 
Subtotal asset-backed securities13,125.5 13,125.5 13,618.6 
Redeemable preferred stocks:
Financials61.2 61.2 62.6 
Utilities7.2 7.2 7.5 
Industrials10.3 141.8 152.1 149.0 
Subtotal redeemable preferred stocks10.3 210.2 220.5 219.1 
Total fixed maturities19,539.1 26,777.3 46,316.4 48,082.7 
Short-term investments512.9 17.0 529.9 529.9 
    Total available-for-sale securities20,052.0 26,794.3 46,846.3 48,612.6 
Equity securities:
Nonredeemable preferred stocks:
Financials92.2 1,237.3 61.4 1,390.9 1,425.4 
Utilities78.1 78.1 80.0 
Industrials24.6 33.9 58.5 40.1 
Subtotal nonredeemable preferred stocks92.2 1,340.0 95.3 1,527.5 1,545.5 
Common equities:
Common stocks4,743.2 49.3 4,792.5 1,261.6 
Other risk investments20.1 20.1 20.1 
Subtotal common equities4,743.2 49.3 20.1 4,812.6 1,281.7 
    Total equity securities4,835.4 1,389.3 115.4 6,340.1 2,827.2 
Total portfolio$24,887.4 $28,183.6 $115.4 $53,186.4 $51,439.8 
Debt$$6,692.6 $$6,692.6 $6,385.6 
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 Fair Value 
(millions)Level 1Level 2Level 3TotalCost
December 31, 2022
Fixed maturities:
U.S. government obligations$25,167.4 $$$25,167.4 $26,770.7 
State and local government obligations1,977.1 1,977.1 2,180.0 
Foreign government obligations15.5 15.5 16.8 
Corporate debt securities9,412.7 9,412.7 10,125.8 
Subtotal25,167.4 11,405.3 36,572.7 39,093.3 
Asset-backed securities:
Residential mortgage-backed666.8 666.8 696.1 
Commercial mortgage-backed4,663.5 4,663.5 5,446.0 
Other asset-backed4,564.6 4,564.6 4,826.0 
Subtotal asset-backed securities9,894.9 9,894.9 10,968.1 
Redeemable preferred stocks:
Financials40.5 40.5 43.6 
Utilities9.1 9.1 10.5 
Industrials9.2 125.5 134.7 148.5 
Subtotal redeemable preferred stocks9.2 175.1 184.3 202.6 
Total fixed maturities25,176.6 21,475.3 46,651.9 50,264.0 
Short-term investments2,800.7 61.0 2,861.7 2,861.7 
    Total available-for-sale securities27,977.3 21,536.3 49,513.6 53,125.7 
Equity securities:
Nonredeemable preferred stocks:
Financials39.0 994.4 67.4 1,100.8 1,244.2 
Utilities71.2 71.2 79.9 
Industrials24.8 16.4 41.2 40.1 
Subtotal nonredeemable preferred stocks39.0 1,090.4 83.8 1,213.2 1,364.2 
Common equities:
Common stocks2,783.4 18.3 2,801.7 806.3 
Other risk investments19.8 19.8 19.8 
Subtotal common equities2,783.4 38.1 2,821.5 826.1 
    Total equity securities2,822.4 1,090.4 121.9 4,034.7 2,190.3 
Total portfolio$30,799.7 $22,626.7 $121.9 $53,548.3 $55,316.0 
Debt$$5,717.9 $$5,717.9 $6,388.3 

Our portfolio valuations, excluding short-term investments, classified as either Level 1 or Level 2 in the above tables are priced exclusively by external sources, including pricing vendors, dealers/market makers, and exchange-quoted prices.
Our short-term investments classified as Level 1 are highly liquid, actively marketed, and have a very short duration, primarily 90 days or less to redemption. These securities are held at their original cost, adjusted for any accretion of discount, since that value very closely approximates what an active market participant would be willing to pay for such securities. The remainder of our short-term investments are classified as Level 2 and are not priced
externally since these securities continually trade at par value. These securities are classified as Level 2 since they are primarily longer-dated securities issued by municipalities that contain either liquidity facilities or mandatory put features within one year.
At March 31, 2023, vendor-quoted prices represented 91% of our Level 1 classifications (excluding short-term investments), compared to 81% and 90% at March 31, 2022 and December 31, 2022, respectively. The securities quoted by vendors in Level 1 primarily represent our holdings in U.S. Treasury Notes, which are frequently traded, and the quotes are considered similar to exchange-traded quotes. The balance of our Level 1 pricing comes
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from quotes obtained directly from trades made on active exchanges.
At both March 31, 2023 and December 31, 2022, vendor-quoted prices comprised 98% of our Level 2 classifications (excluding short-term investments and common stock), while dealer-quoted prices represented the remaining 2%, compared to 97% and 3% at March 31, 2022. In our process for selecting a source (e.g., dealer or pricing service) to provide pricing for securities in our portfolio, we reviewed documentation from the sources that detailed the pricing techniques and methodologies used by these sources and determined if their policies adequately considered market activity, either based on specific transactions for the particular security type or based on modeling of securities with similar credit quality, duration, yield, and structure that were recently transacted. Once a source is chosen, we continue to monitor any changes or modifications to their processes by reviewing their documentation on internal controls for pricing and market reviews. We review quality control measures of our sources as they become available to determine if any significant changes have occurred from period to period that might indicate issues or concerns regarding their evaluation or market coverage.
As part of our pricing procedures, we obtain quotes from more than one source to help us fully evaluate the market price of securities. However, our internal pricing policy is to use a consistent source for individual securities in order to maintain the integrity of our valuation process. Quotes obtained from the sources are not considered binding offers to transact. Under our policy, when a review of the valuation received from our selected source appears to be outside of what is considered market level activity (which is defined as trading at spreads or yields significantly different than those of comparable securities or outside the general sector level movement without a reasonable explanation), we may use an alternate source’s price. To the extent we determine that it may be prudent to substitute one source’s price for another, we will contact the initial source to obtain an understanding of the factors that may be contributing to the significant price variance.
To allow us to determine if our initial source is providing a price that is outside of a reasonable range, we review our portfolio pricing on a weekly basis. When necessary, we challenge prices from our sources when a price provided does not match our expectations based on our evaluation of market trends and activity. Initially, we perform a review of our portfolio by sector to identify securities whose prices appear outside of a reasonable range. We then perform a more detailed review of fair values for securities disclosed as Level 2. We review dealer bids and quotes for these and/or similar securities to determine the market level context for our valuations. We then evaluate inputs relevant for each class of securities disclosed in the preceding hierarchy tables.
For structured debt securities, including commercial, residential, and other asset-backed securities, we evaluate available market-related data for these and similar securities related to collateral, delinquencies, and defaults for historical trends and reasonably estimable projections, as well as historical prepayment rates and current prepayment assumptions and cash flow estimates. We further stratify each class of our structured debt securities into more finite sectors (e.g., planned amortization class, first pay, second pay, senior, subordinated, etc.) and use duration, credit quality, and coupon to determine if the fair value is appropriate.
For corporate debt and preferred stock (redeemable and nonredeemable) portfolios, as well as the notes issued by The Progressive Corporation (see Note 4 – Debt), we review securities by duration, coupon, and credit quality, as well as changes in interest rate and credit spread movements within that stratification. The review also includes recent trades, including: volume traded at various levels that establish a market; issuer specific fundamentals; and industry specific economic news as it comes to light.
For municipal securities (e.g., general obligations, revenue, and housing), we stratify the portfolio to evaluate securities by type, coupon, credit quality, and duration to review price changes relative to credit spread and interest rate changes. Additionally, we look to economic data as it relates to geographic location as an indication of price-to-call or maturity predictors. For municipal housing securities, we look to changes in cash flow projections, both historical and reasonably estimable projections, to understand yield changes and their effect on valuation.
For short-term securities, we look at acquisition price relative to the coupon or yield. Since our short-term securities are typically 90 days or less to maturity, with the majority listed in Level 2 being 30 days or less to redemption, we believe that acquisition price is the best estimate of fair value.
We also review data assumptions as supplied by our sources to determine if that data is relevant to current market conditions. In addition, we independently review each sector for transaction volumes, new issuances, and changes in spreads, as well as the overall movement of interest rates along the yield curve to determine if sufficient activity and liquidity exists to provide a credible source for our market valuations.
During each valuation period, we create internal estimations of portfolio valuation (performance returns), based on current market-related activity (i.e., interest rate and credit spread movements and other credit-related factors) within each major sector of our portfolio. We compare our internally generated portfolio results with th