Progressive is about to complete its $1.4 billion deal for homegrown insurer ASI

Ohio-based insurance giant Progressive Corp. said it will pay $242 million to buy out the remaining shareholders in ARX Holding Corp., the parent company of the former American Strategic Insurance in St. Petersburg.

It’s the final step in an acquisition process that began in 2015 and put Progressive (NYSE: PGR), best known for its auto insurance, into the property insurance business as well.

The property business, now known as Progressive Home, remains based in St. Petersburg and is led by David Pratt, general manager. The company has become a national property insurer, with significant growth over the past five years in staff size and premiums written, but as it expanded to more states, it has encountered new challenges that have cut into earnings.

Progressive bought a controlling interest in ARX in April 2015 for $890 million. Three years later, in April 2018, Progressive bought additional ARX shares for $296 million to increase ownership above 80 percent.  By April 2020 — one year earlier than originally planned — Progressive expects to buy the remaining shares of ARX for $242 million, Tricia Griffith, Progressive’s president and CEO, said during an investor presentation Wednesday.

“The question I would ask if I were an analyst or an investor would be — given the recent struggle with property profitability, are you still glad that you had the ARX transaction?” Griffith said. “A couple of words: Yes, absolutely, unequivocally, all those things.”

Progressive Home reported $1.55 billion in net earned premium in 2019, up 21 percent from 2018, while the “combined ratio” — a measure of profitability for insurance companies — also improved. In addition, Progressive has grown its customer base by selling auto and home insurance policies as a bundle. The company believes it got an extra $750 million in auto insurance premiums in 2019 because it also offered homeowners policies.

“We equate that to nearly $5 billion in lifetime earned premium,” Griffith said.

David Pratt, general manager, Progressive Home

Growth is meeting expectations, Pratt said during the investor presentation, but expansion beyond Florida and the Gulf Coast states has brought new perils. Many of the midwestern states in which Progressive now writes homeowners policies get a lot of wind and hail claims. The company last year increased property insurance rates almost 9 percent in those states, compared to 4 percent in the rest of the country, and has started to require customers in those states to buy higher deductibles and insure the actual cash value coverage for a roof, not the replacement cost.

Those changes should mitigate the need for further rate hikes, Pratt said.

Increased profitability is one of his five priorities for 2020.

Others are:

A focus on our people and culture. “Because of the fast growth in this business, over the last three years we’ve gone from less than 600 people working in the property business to more than 1,200 people, so it’s really important we spend a lot of effort on coaching and career development so those people are effective in their jobs, enjoy their jobs and want to stay with Progressive for a long time.”

Process improvement. “We have opportunities to improve processes as we grow, to become more efficient and reduce costs per policy.”

Sales. “We want to continue to make it easy for agents and customers to quote and buy our policies.”

Improved customer experience. “The focus here is on those bundled customers. There are instances today where for example the billing experience is different on your auto policy compared to your home policy. We want to align those experiences so that the bundled customer has the same experience across all of our products. We think that will result in even better customer retentions, and we’ll keep those bundled customers for a long time.”

Progressive also announced that Julia Hornack, the company’s business leader for investor relations and risk, was relocating to the St. Petersburg office, where she will be in product leadership, managing various products, process and vendor relationships for the property business.