OREANDA-NEWS. Fitch Ratings has affirmed The Progressive Corporation's (NYSE: PGR) Issuer Default Rating (IDR) of 'A+', senior debt ratings of 'A', and junior debt of 'BBB+'. Fitch also affirms Progressive's operating subsidiaries' Insurer Financial Strength (IFS) rating at 'AA'. The Rating Outlook is Stable. A complete list of ratings follows the end of the release.

KEY RATING DRIVERS

Fitch's ratings are based on Progressive's excellent operating performance, pricing and underwriting expertise, personal auto insurance franchise, conservative investment allocation, and very strong risk-based capital position.

Fitch views the company's market position and size/scale as 'Large' and notes that companies with this profile are typically rated in the 'AA' IFS rating category. Progressive is the fourth-largest U. S. private passenger auto writer based on 2015 premium written. Fitch views Progressive's market share and competitive positioning in its key line of business as slightly favorable relative to peers.

Progressive reported a GAAP combined ratio of 95.7% through the first five months of 2016 and 92.5% for full-year 2015, versus 92.3% reported during the full-year 2014. Embedded in PGR's culture is obtaining a GAAP calendar year combined ratio of 96% or better. Fitch continues to view Progressive as one of the strongest underwriters among major property/casualty companies, and recognizes the company's history of favorable underwriting margins and stability.

Capitalization at the operating company level scored 'Very Strong' based on year-end 2014 data on Fitch's proprietary capital model, Prism, which is considered consistent with Progressive's 'AA' IFS rating. Prism results for 2015 will be available in late summer 2016. Total shareholders' equity increased by 6.1% since year-end 2015, to over $7.7 billion at May 31, 2016, driven by net earnings of $389 million and $109 million of unrealized investment gains through the first five months of 2016.

Progressive's financial leverage, as measured by total debt to total capital adjusted for the impact of FAS 115 unrealized gains on fixed income investments as of May 31, 2016, was 26.0% and is anticipated to remain near current levels for the near term.

Progressive's profitability promotes strong interest coverage. GAAP fixed charge coverage, excluding realized gains, through the first five months of 2016 was 10.2x, down from the five-year average between 2011-2015 of 12.6x. Fitch believes that GAAP fixed charge coverage will range from high single digits to low double digits over the near term.

RATING SENSITIVITIES

Factors that could lead to a ratings downgrade include the following:

--Obtaining a GAAP calendar year combined ratio of 99% or higher.

--Failure to maintain a Prism score of 'Very Strong' or better.

--An increase in statutory net leverage, defined as net written premiums plus total liabilities relative to policyholders surplus plus Progressive Investment Company, Inc's assets, above 5x.

--Failure to maintain statutory maximum dividend coverage ratio of 7x or higher on a sustained basis.

--A meaningful change to the auto insurance market that unfavorably alters the operating environment.

--Growth in homeowners business that substantially increases probable maximum loss (PML) levels.

Fitch believes that a ratings upgrade for Progressive would require a broadened product focus with a material reduction of net leverage.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings with a Stable Outlook:

The Progressive Corporation

--IDR at 'A+';

--$500 million 3.75% due Aug. 23, 2021 at 'A';

--$300 million 6.625% due March 31, 2029 at 'A';

--$400 million 6.25% due Dec. 1, 2032 at 'A';

--$350 million 4.35% due Apr. 25, 2044 at 'A';

--$400 million 3.70% due Jan. 26, 2045 at 'A';

--Junior subordinated debentures at 'BBB+';

--$613.1 million 6.7% due June 18, 2067 at 'BBB+'.

Fitch has affirmed the following companies' 'AA' IFS ratings with a Stable Outlook:

The following are members of Progressive Direct Holdings:

Mountain Laurel Assurance. Co.

Progressive Advanced Insurance Company

Progressive Choice Ins Co.

Progressive Direct Insurance Co.

Progressive Freedom Ins Co.

Progressive Garden State Ins Co.

Progressive Marathon Ins Co.

Progressive MAX Ins Co.

Progressive Paloverde Ins. Co.

Progressive Premier Ins. Co. of IL

Progressive Select Insurance Co.

Progressive Universal Ins. Co.

The following are members of Drive Insurance Holdings:

Drive New Jersey Ins Co.

Progressive American Ins. Co.

Progressive Bayside Ins. Co.

Progressive Casualty Ins. Co.

Progressive Classic Insurance Co.

Progressive Commercial Casualty Company

Progressive County Mutual Insurance Co.

Progressive Gulf Ins. Co.

Progressive Hawaii Ins. Co.

Progressive Michigan Ins. Co.

Progressive Mountain Insurance Co.

Progressive Northern Ins. Co.

Progressive Northwestern Ins.

Progressive Preferred Ins. Co.

Progressive Security Ins. Co.

Progressive Southeastern Ins. Co.

Progressive Specialty Ins. Co.

Progressive West Ins. Co.

The following are members of Progressive Commercial Holdings:

Artisan & Truckers Casualty Co.

Progressive Express Ins. Co.

United Financial Casualty Co.