PROGRESSIVE CORP/OH/ (PGR) FY 2021 MD&A

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand our financial condition and results of operations. MD&A should be read in conjunction with the consolidated financial statements and the related notes, and supplemental information.

I. OVERVIEW

The Progressive insurance organization has been offering insurance to consumers since 1937. The Progressive Corporation is a holding company that does not have any revenue producing operations, physical property, or employees of its own. The Progressive Corporation, together with its insurance and non-insurance subsidiaries and affiliates, comprise what we refer to as Progressive.

We report three operating segments. Our Personal Lines segment writes insurance for personal autos and recreational vehicles (referred to as our special lines products). Our Commercial Lines segment writes auto-related liability and physical damage insurance, workers’ compensation insurance primarily for the transportation industry, and business-related general liability and property insurance, predominately for small businesses. Our Property segment writes residential property insurance for homeowners, other property owners, and renters. We operate throughout the United States through both the independent agency and direct distribution channels. We are the third largest private passenger auto insurer in the country, the number one writer of commercial auto insurance, and one of the top 15 homeowners insurance carriers, in each case, based on premiums written.

Our underwriting operations, combined with our service and investment operations, make up the consolidated group.

A. Operating Results

On a year-over-year basis, net income and comprehensive income decreased 41% and 61%, respectively. Underwriting income decreased 57% on a year-over-year basis, and investment income was down 8%, which reflects a lower portfolio yield in 2021, compared to 2020, partially offset by an increase in average assets during the year. In addition, unrealized gains on our fixed-maturity securities decreased $891.1 million in 2021, compared to an increase of $586.5 million in the prior year, primarily reflecting an increase in interest rates and narrowing credit spreads during 2021.

We generated a 4.7% underwriting profit margin during 2021, which was better than our goal of achieving an aggregate 4% margin for the year, although well below the 12.3% underwriting profit margin in 2020. The strong profitability in 2020, reflected the lower losses we incurred due to the federal, state, and local social distancing and shelter-in-place restrictions that were put in place to stop or

slow the spread of the novel coronavirus, COVID-19. We continued to enjoy strong margins at the beginning of 2021, however, starting in the second quarter, as states started to lift restrictions and miles driven started to return to near pre-pandemic levels, we began to see frequency and severity patterns shift.

The decreased underwriting profitability in 2021 primarily reflected an increase in the loss and loss adjustment expense ratio due to a 14% increase in personal auto accident frequency and a 9% increase in personal auto accident severity on a year-over-year basis. We saw both vehicle miles traveled and claims frequency per mile traveled increase relative to 2020. During the year, U.S. inflation rates experienced their largest annual increase in nearly 40 years and used car values increased materially, which put pressure on our average claims cost. In addition to rising frequency and severity, Hurricane Ida, our costliest storm in terms of loss costs, reduced our profitability with nearly $420 million in losses, or 0.9 points.

With our dedication to achieve our target goal of a 96 combined ratio for our underwriting operations, throughout 2021, we filed personal auto rate changes where appropriate, including rate increases in 35 states, with net rate increases, in the aggregate of about 8%. Management continues to assess miles driven, driving patterns, loss severity, weather events, inflation, and other components of expected loss costs on a state-by-state basis and will continue to file for rate adjustments where deemed necessary.

In addition to rate actions, we also tightened underwriting criteria and took other non-rate measures during the year where losses indicated rate inadequacy. We reduced spend, in certain types of advertising, based on performance against our media and underwriting targets. Our total advertising spend during 2021 was 2% lower than the prior year. Consistent with rate actions, management will continue to assess where additional non-rate actions may be needed.

These rate and non-rate measures resulted in fewer new business auto applications during the year, and could impact growth in future periods. Nevertheless, we strongly believe that reaching our target profit margin takes precedence over growing premiums and these steps are necessary to get us well positioned for the future.

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Despite raising rates, implementing underwriting restrictions, and taking other non-rate actions, we recognized growth in both policies in force and premiums during 2021. We added 1.8 million policies bringing companywide policies in force to 26.5 million at December 31, 2021, a 7% increase over last year end. Net premiums written grew 14% to end the year at $46.4 billion, $5.8 billion more premiums written than 2020.

We ended 2021 with total capital (debt plus shareholders’ equity) of $23.1 billion, $0.7 billion more than 2020. The year-over-year increase primarily reflects our comprehensive income, in part offset by our common and preferred share dividends of $1.1 billion, the maturity of our $500 million 3.75% Senior Notes, and common share repurchases of $223 million during the year.

B. Insurance Operations

For 2021, our companywide underwriting profit margin was 4.7%, compared to 12.3% in 2020. Our Personal Lines and Commercial Lines operating segments were profitable with underwriting margins of 4.6% and 11.1%, respectively, while our Property segment had an underwriting loss of 15.3% for the year, which included 31.0 points of catastrophe losses.

Our overall incurred frequency in our personal auto business increased about 14%, while severity increased about 9%, compared to the prior year. The frequency of vehicle accidents were higher than the prior year as vehicle miles driven began to increase during 2021, although at year end driving patterns still had not yet returned to pre-COVID levels.

During the year, on a companywide basis, we recognized 3.0 loss ratio points related to catastrophe losses, compared to 2.2 points in 2020. Hurricane Ida contributed 0.9 loss ratio points, with the remaining catastrophe losses attributable to other hurricanes, wind, hail, and tornadoes throughout the United States.

On a year-over-year basis, net premiums written grew in each of our segments with Personal Lines growing 8%, Commercial Lines 51%, and Property 16%. Changes in net premiums written are a function of new business applications (i.e., policies sold), premium per policy, and retention. Policies in force grew 7% companywide, with Personal Lines, Commercial Lines, and Property growing 6%, 18%, and 12%, respectively.

During 2021, total new personal auto application growth decreased 3% on a year-over-year basis, with our Agency auto decreasing 8% and Direct auto flat. Agency auto new applications were down compared to the prior year, as a result of the actions taken to address profitability, as discussed above.

The increase in net premiums written in our Commercial Lines business reflected growth in all of our business market targets, but especially in our for-hire transportation

business market target, driven by greater demand for shipping services in light of the pandemic. The Commercial Lines growth was also aided, to a lesser extent, by an increase in our transportation network company (TNC) business, due to an increase in the miles driven, which is the basis for determining premiums written for this business. For our commercial auto business (excluding TNC) new applications increased 27% for 2021, compared to the prior year, driven by both increased quote volume and rate of conversion.

Our Property business new applications increased 20% for the year, primarily driven by growth in our direct channel.

During 2021, on a year-over-year basis, written premium per policy increased 1% in our Agency personal auto and decreased 1% in our Direct personal auto businesses. The rate increases implemented in 2021 did not have a significant effect on written premium per policy since they were predominately effective the second half of the year. Written premium per policy for our special lines products increased 4%, compared to the prior year.

Commercial Lines experienced a 17% increase in written premium per policy in our commercial auto products, which primarily reflected more vehicles per policy and a shift in the mix of business toward higher premium coverages. In aggregate, rate increases for commercial auto were about 4% in 2021.

Written premium per policy for our Property business grew 1% year over year, despite net rate increases of about 7% for 2021. During the year, the Property business recognized a shift in the mix of business to a larger share of renters policies, which have lower written premium per policy.

While we are taking actions to address profitability as discussed above, we remain focused on growth and realize that to grow policies in force, it is critical that we retain our customers for longer periods. Consequently, increasing retention continues to be one of our most important priorities. Our efforts to increase our share of multi-product households remains a key initiative and we will continue to make investments to improve the customer experience in order to support that goal. Policy life expectancy, which is our actuarial estimate of the average length of time that a policy will remain in force before cancellation or lapse in coverage, is our primary measure of customer retention in our Personal Lines, Commercial Lines, and Property businesses.

We evaluate retention using a trailing 12-month total auto policy life expectancy and a trailing 3-month policy life expectancy. The trailing 3-month measure does not address seasonality and can reflect more volatility. On a trailing 3-month basis, our personal auto policy life expectancy was down 1% year over year. Our trailing 12-month total personal auto policy life expectancy was up 2% year over year, with Agency up 1% and Direct up 3%. Our trailing

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12-month policy life expectancy increased 5% for special lines, 11% for Commercial Lines, and decreased 9% for Property.

C. Investments

The fair value of our investment portfolio was $51.5 billion at December 31, 2021, compared to $47.5 billion at December 31, 2020. The $4.0 billion increase from year-end 2020, primarily reflects positive investment results and solid cash flows from operations, net of common and preferred share dividend payments, common stock repurchases, and payment of Senior Notes that matured during the year.

Our asset allocation strategy is to maintain 0%-25% of our portfolio in Group I securities, with the balance (75%-100%) of our portfolio in Group II securities (the securities allocated to Group I and II are defined below under Results of Operations – Investments). At December 31, 2021, 17% of our portfolio was allocated to Group I securities and 83% to Group II securities, compared to 14% and 86%, respectively, at December 31, 2020. The increase in the percentage of Group I securities during 2021 was primarily driven by common equity appreciation and an increase in non-investment-grade fixed maturities, in which we increased our exposure to short-duration credit bonds where the underlying loans had meaningful appreciation.

Our recurring investment income generated a pretax book yield of 1.9% for 2021, compared to 2.4% for 2020, primarily due to investing new cash at lower interest rates. Our investment portfolio produced a fully taxable equivalent (FTE) total return of 2.6% for 2021 and of 7.9% for 2020. Our fixed-income and common stock portfolios had FTE total returns (0.1)% and 33.4%, respectively, for 2021, compared to 6.7% and 24.3%, for 2020. The year-over-year decrease in our fixed-income FTE total return was the result of an increase in interest rates and narrowing credit spreads during the year. Our common stock portfolio’s FTE total return primarily reflected positive market performance within the Russell 1000 index.

At both December 31, 2021 and 2020, the fixed-income portfolio had a weighted average credit quality of AA- with a duration of 3.0 years at year end 2021, compared to 2.9 years at December 31, 2020. We lengthened our portfolio duration slightly over the previous twelve months and it remains slightly below the midpoint of our 1.5 year to 5 year range, which we believe provides some protection against an increase in interest rates.

II.  FINANCIAL CONDITION

A. Liquidity and Capital Resources

The Progressive Corporation receives cash through subsidiary dividends, capital raising and other transactions, and uses these funds to contribute to its subsidiaries (e.g., to support growth), to make payments to shareholders and debt holders (e.g., dividends and interest, respectively), to repurchase its common shares, and to redeem or pay off debt, as well as for acquisitions and other business purposes that may arise.

During 2021, The Progressive Corporation received cash dividends of $2.4 billion, net of capital contributions, from its insurance and non-insurance subsidiaries. There were no capital raising transactions during the year.

The Progressive Corporation deployed capital through the following actions in 2021:

•Dividends

◦Common shares - declared aggregate dividends of $1.90 per common share, or $1.1 billion.

◦Preferred shares - declared aggregate Series B Preferred dividends of $26.8 million.

•Debt Payment - paid $500 million at maturity for our 3.75% Senior Notes.

•Common Share Repurchases - acquired 2.4 million of our common shares at a total cost of $223.0 million to neutralize dilution from equity-based compensation granted during the year, consistent with our financial

policies, and opportunistically when we believed our shares were trading below our determination of long-term fair value. The repurchases were made in the open market or pursuant to our equity compensation plans (i.e., repurchased shares to cover tax obligations upon vesting of restricted stock units).

•Acquisitions - acquired all of the outstanding Class A and Class B common shares of Protective Insurance Corporation for $23.30 per share, or approximately $338 million in aggregate.

Over the last three years, The Progressive Corporation received dividends from its subsidiaries, net of capital contributions, of $8.6 billion, and issued $1.0 billion of senior notes. The covenants on The Progressive Corporation’s existing debt securities do not include any rating or credit triggers that would require an adjustment of the interest rate or an acceleration of principal payments in the event that our debt securities are downgraded by a rating agency. While we had an unsecured discretionary line of credit available to us during each of the last three years in the amount of $250 million, we did not borrow under this arrangement, or engage in other short-term borrowings, to fund our operations or for liquidity purposes.

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In the aggregate for the last three years, we made the following payments:

•$7.0 billion for common and preferred share dividends;

•$0.6 billion for interest on our outstanding debt;

•$0.5 billion for the maturity of debt;

•$0.4 billion to repurchase our common shares; and

•$0.6 billion related to acquisitions.

For the three years ended December 31, 2021, operations generated positive cash flows of about $20.9 billion, and cash flows are expected to remain positive in the reasonably foreseeable future. In 2021, operating cash flows increased $0.9 billion, compared to 2020, in part due to the $1.1 billion of policyholder credits paid out of operating cash flows in 2020, partially offset by paying losses at a faster rate than premiums were being collected during 2021. We do not believe we will have a need to raise capital to support our operations in the foreseeable future, although changes in market conditions affecting the insurance industry may necessitate otherwise.

As of December 31, 2021, we held $19.4 billion in short-term investments and U.S. Treasury securities. Based on our portfolio allocation and investment strategies, we believe that we have sufficient readily available marketable securities to cover our claims payments in the event our cash flow from operations were to be negative. See Item 1A – Risk Factors in our 2021 Form 10-K filed with the U.S. Securities and Exchange Commission for a discussion of certain matters that may affect our portfolios and capital position.

Progressive’s insurance operations create liquidity by collecting and investing premiums from new and renewal business in advance of paying claims. As primarily an auto insurer, our claims liabilities are generally short in duration. At December 31, 2021, our loss and loss adjustment expense (LAE) reserves were $26.2 billion. Typically, at any point in time, approximately 50% of our outstanding loss and LAE reserves are paid within the following twelve months and less than 20% are still outstanding after three years. See Note 6 – Loss and Loss Adjustment Expense Reserves for further information on the timing of claims payments.

Insurance companies are required to satisfy regulatory surplus and premiums-to-surplus ratio requirements. As of December 31, 2021, our consolidated statutory surplus was $16.4 billion, compared to $15.2 billion at December 31, 2020. Our net premiums written-to-surplus ratio was 2.8 to 1 at year-end 2021 and 2.7 to 1 at year-end 2020 and 2019. At year-end 2021, we also had access to $4.2 billion of securities held in a non-insurance subsidiary, portions of which could be contributed to the capital of our insurance subsidiaries to support growth or for other purposes.

Insurance companies are also required to satisfy risk-based capital ratios. These ratios are determined by a series of dynamic surplus-related calculations required by the laws of various states that contain a variety of factors that are

applied to financial balances based on the degree of certain risks (e.g., asset, credit, and underwriting). Our insurance subsidiaries’ risk-based capital ratios are in excess of applicable minimum regulatory requirements. Nonetheless, the payment of dividends by our insurance subsidiaries are subject to certain limitations. See Note 8 – Statutory Financial Information for additional information on insurance subsidiary dividends.

We seek to deploy our capital in a prudent manner and use multiple data sources and modeling tools to estimate the frequency, severity, and correlation of identified exposures, including, but not limited to, catastrophic and other insured losses, natural disasters, and other significant business interruptions, to estimate our potential capital needs. Management views our capital position as consisting of three layers, each with a specific size and purpose:

•The first layer of capital, which we refer to as “regulatory capital,” is the amount of capital we need to satisfy state insurance regulatory requirements and support our objective of writing all the business we can write and service, consistent with our underwriting discipline of achieving a combined ratio of 96 or better. This capital is held by our various insurance entities.

•The second layer of capital we call “extreme contingency.” While our regulatory capital is, by definition, a cushion for absorbing financial consequences of adverse events, such as loss reserve development, litigation, weather catastrophes, and investment market corrections, we view that as a base and hold additional capital for even more extreme conditions. The modeling used to quantify capital needs for these conditions is extensive, including tens of thousands of simulations, representing our best estimates of such contingencies based on historical experience. This capital is held either at a non-insurance subsidiary of the holding company or in our insurance entities, where it is potentially eligible for a dividend to the holding company.

•The third layer is capital in excess of the sum of the first two layers and provides maximum flexibility to fund other business opportunities, repurchase stock or other securities, satisfy acquisition-related commitments, and pay dividends to shareholders, among other purposes. This capital is largely held at a non-insurance subsidiary of the holding company.

At all times measured during the last two years, which at a minimum occurs at the end of each month, our total capital exceeded the sum of our regulatory capital layer plus our self-constructed extreme contingency layer. At December 31, 2021, we held total capital (debt plus shareholders’ equity) of $23.1 billion, compared to $22.4 billion at December 31, 2020. Our debt-to-total capital ratios at December 31, 2021, 2020, and 2019, were 21.2%, 24.1%, and 24.4%, respectively, and were consistent with our financial policy of maintaining a ratio of less than 30%, which we target to meet annually.

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At December 31, 2021, we have various noncancelable contractual obligations that were outstanding. We held $4.9 billion of Senior Notes with maturity dates ranging from 2027 through 2050, with $3.6 billion of future interest payment obligations related to our outstanding debt. The next debt repayment of $500 million is due upon the maturity of our 2.45% Senior Notes due 2027. See Note 4 – Debt for additional information on our long-term debt.

At year-end 2021, we also had $1.0 billion of purchase obligations that are noncancelable commitments for goods and services (e.g., software licenses, maintenance on information technology equipment, and media placements). About 80% of our purchase obligations are paid within one year and less than 1% are outstanding for three years or longer. In addition, our Property business has $132.1 million of minimum commitments under several multiple-layer property catastrophe reinsurance contracts with various reinsurers with terms ranging from one to three years. See Note 1 – Reporting and Accounting Policies, Commitments and Contingencies for a discussion of these obligations. We do not have any material commitments for capital expenditures in the reasonably foreseeable future.

As of December 31, 2021, we recorded a liability related to our obligation to refund $541.5 million to eligible Michigan policyholders in conjunction with a refund from

the surplus of the Michigan Catastrophic Claims Association (MCCA) to its member insurance companies. This obligation will be fully funded by the MCCA. Therefore, this transaction will have no effect on our liquidity, financial condition, cash flows, or results of operations.

Based upon our capital planning and forecasting efforts, we believe we have sufficient capital resources and cash flows from operations to support our current business, scheduled principal and interest payments on our debt, anticipated quarterly dividends on our common shares and Series B Preferred Shares, our contractual obligations, and other expected capital requirements for the foreseeable future.

Nevertheless, we may determine to raise additional capital to take advantage of attractive terms in the market and provide additional financial flexibility. We have an effective shelf registration with the U.S. Securities and Exchange Commission so that we may periodically offer and sell an indeterminate aggregate amount of senior or subordinated debt securities, preferred stock, depositary shares, common stock, purchase contracts, warrants, and units. The shelf registration enables us to raise funds from the offering of any securities covered by the shelf registration as well as any combination thereof, subject to market conditions.

III.  RESULTS OF OPERATIONS – UNDERWRITING

A. Segment Overview

We report our underwriting operations in three segments: Personal Lines, Commercial Lines, and Property. As a component of our Personal Lines segment, we report our Agency and Direct business results to provide further understanding of our products by distribution channel.

The following table shows the composition of our companywide net premiums written, by segment, for the years ended December 31:

Our Personal Lines segment writes insurance for personal autos (which accounts for about 94% of the segment’s net premiums written) and special lines products (e.g., motorcycles, watercraft, and RVs). Within Personal Lines we often refer to our four consumer segments, which include:

•Sam - inconsistently insured;

•Diane - consistently insured and maybe a renter;

•Wrights - homeowners who do not bundle auto and home; and

•Robinsons - homeowners who bundle auto and home.

While our personal auto policies are primarily written for 6-month terms, we write 12-month auto policies in our Platinum agencies to promote bundled auto and home growth. At year-end 2021, 14% of our Agency auto policies in force were 12-month policies, compared to about 12% a year earlier. While the shift to 12-month policies is slow, to the extent our Agency new business application mix of annual policies grows, that shift in policy term could increase our written premium mix by channel as 12-month policies have about twice the amount of net premiums written compared to 6-month policies. The special lines products are written for 12-month terms.

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Our Commercial Lines business writes auto-related liability and physical damage insurance, workers’ compensation coverage primarily for the transportation industry, and business-related general liability and property insurance, predominately for small businesses. The majority of our Commercial Lines business is written through the independent agency channel although our direct business is growing. The amount of commercial auto business written through the direct channel, excluding our TNC business, grew 66% year over year and represented about 10% of premiums written for 2021, compared to 9% for 2020 and 8% for 2019. To serve our direct channel customers, we continued to expand our product offerings, including adding states where we offer our business owners policy and include the product on our digital

platform serving direct small business consumers (BusinessQuote Explorer®). About 90% of our Commercial Lines auto policies are written for 12-month terms.

Our Property business writes residential property insurance for homeowners, other property owners, and renters.We write the majority of our Property business through the independent agency channel; however, we continue to expand the distribution of our Property product offerings in the direct channel, which represented about 23% of premiums written for 2021, compared to 18% and 16% for 2020 and 2019, respectively. Property policies are written for 12-month terms.

B. Profitability

Profitability for our underwriting operations is defined by pretax underwriting profit, which is calculated as net premiums earned plus fees and other revenues less losses and loss adjustment expenses, policy acquisition costs, other underwriting expenses, and for 2020, policyholder credits. We also use underwriting margin, which is underwriting profit or loss expressed as a percentage of net premiums earned, to analyze our results. For the three years ended December 31, our underwriting profitability results were as follows:

1 During 2021, 2020, and 2019, pretax profit (loss) includes $56.6 million, $56.9 million, and $66.3 million, respectively, of amortization expense associated with acquisition-related intangible assets attributable to our Property segment.

2 Underwriting margins for our other indemnity businesses are not meaningful (NM) due to the low level of premiums earned by, and the variability of loss costs in, such businesses.

The decreases in underwriting profit margin in 2021, compared to 2020, primarily reflects higher accident frequency and severity in both our personal and commercial auto products, as well as higher catastrophe losses during 2021. Profitability in 2020 also reflects the favorable impact that we recognized due to the lower frequency experienced during the year as a result of restrictions in place to help slow the pace of the spread of COVID-19.

The pandemic has shifted consumer behavior and impacted general economic conditions. We have seen volatility in our severity trends as vehicle prices continue to rise and the cost to repair vehicles is increasing. We have responded, and will continue to respond, to these market changes through rate increases, underwriting restrictions, and other non-rate actions. Our focus on achieving our target underwriting profitability takes precedence over growth. See Item 1A – Risk Factors Section VII. Other in our 2021 Form 10-K filed with the U.S. Securities and Exchange Commission, for the year ended December 31, 2021, for a further discussion of the risks associated with COVID-19.

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Further underwriting results for our Personal Lines business, including results by distribution channel, the Commercial Lines business, the Property business, and our underwriting operations in total, were as follows:

1 Ratios are expressed as a percentage of net premiums earned; fees and other revenues are netted with underwriting expenses in the ratio calculations.

2 Included in 2021, 2020, and 2019, are 2.8 points, 3.2 points, and 4.3 points, respectively, of amortization expense on acquisition-related intangible assets attributable to our Property segment. Excluding this expense, the Property business would have reported expense ratios of 26.1, 26.6, and 26.2, and combined ratios of 112.5, 103.9, and 97.4, for 2021, 2020, and 2019, respectively.

3 The accident year ratios include only the losses that occurred during the period noted. As a result, accident period results will change over time, either favorably or unfavorably, as we revise our estimates of loss costs when payments are made or reserves for that accident period are reviewed.

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Losses and Loss Adjustment Expenses (LAE)

Claims costs, our most significant expense, represent payments made, and estimated future payments to be made, to or on behalf of our policyholders, including expenses needed to adjust or settle claims. Claims costs are a function of loss severity and frequency and, for our vehicle businesses, are influenced by inflation and driving patterns, among other factors, some of which are discussed below. In our Property business, severity is primarily a function of construction costs and the age of the structure. Accordingly, anticipated changes in these factors are taken

into account when we establish premium rates and loss reserves. Loss reserves are estimates of future costs and our reserves are adjusted as underlying assumptions change and information develops. See Critical Accounting Policies - A. Loss and LAE Reserves for a discussion of the effect of changing estimates.

Our total loss and LAE ratio increased 11.7 points in 2021 and decreased 6.4 points in 2020, each compared to the prior year. Our accident year loss and LAE ratio, which excludes the impact of prior accident year reserve development during each calendar year, increased 12.2 points in 2021 and decreased 6.3 points in 2020. Several factors that contributed to the year-over-year changes are discussed below and include the impact of catastrophe losses, changes in severity and frequency, and prior accident year reserve development.

We experienced severe weather conditions in several areas of the country during each of the last three years. Hurricanes, hail storms, tornadoes, and wind activity contributed to catastrophe losses each year. The following table shows catastrophe losses incurred, net of reinsurance, for the years ended December 31:

Approximately 30% of the catastrophe losses in 2021 were attributable to Hurricane Ida, with the remainder attributable to severe weather throughout the United States. We have responded, and plan to continue to respond, promptly to catastrophic events when they occur in order to provide exemplary claims service to our customers.

Future catastrophes could have a material impact on our financial condition, cash flows, or results of operations. As a result, we reinsure various risks, including, but not limited to, catastrophic losses. We do not have catastrophe-specific reinsurance for our Personal Lines or Commercial Lines businesses, but we reinsure portions of our Property business. The Property business reinsurance programs include multi-year catastrophe excess of loss and aggregate excess of loss contracts.

We evaluate our reinsurance programs during the renewal process, if not more frequently, to ensure our programs continue to effectively respond to the company’s risk tolerance. As a result, during 2021, we renewed our occurrence excess of loss program and increased our retention from $80 million to $200 million. During 2021, we also added $100 million of reinsurance coverage that, depending on the circumstances, could provide additional coverage for named storms or reduce our retention level for a second or later covered storm. For 2022, we entered into

a new aggregate excess of loss program that raised our retention level by $100 million and reduced aggregate potential coverage by $50 million, compared to our 2021 program. In each case, these decisions involved our evaluation of complex considerations relating to our ability to assume more direct risk on a companywide basis, the nature of the risk being insured, and the rising costs for these types of contracts. In our view, our capital position and growing balance sheet enabled us to assume more of these risks via higher retention levels, which largely offset the increasing premium costs for such insurance that we saw during 2021, resulting in slightly lower aggregate premiums for the year. We did not experience a significant lack of availability of any of the types of reinsurance that we typically purchase. See Item 1A – Risk Factors in our 2021 Form 10-K filed with the U.S. Securities and Exchange Commission, for the year ended December 31, 2021, for a discussion of certain risk related to catastrophe events and the potential impact of climate change. See Item 1 – Description of Business-Reinsurance on Form 10-K and Note 7 – Reinsurance for a discussion of our various reinsurance programs.

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Under our various Property catastrophe-specific reinsurance, we ceded the following losses and allocated loss adjustment expenses (ALAE), including development on prior year storms, during the years ended December 31:

NA = Not applicable; this reinsurance coverage was entered into on January 1, 2020.

1 Amount for 2021 was solely attributable to Hurricane Ida.

2 Amount for 2021 was primarily attributable to Hurricane Irma, which exceeded the excess of loss retention threshold in 2017 and, therefore, all development on this prior accident year storm has been fully ceded.

The following discussion of our severity and frequency trends in our personal auto business excludes comprehensive coverage because of its inherent volatility, as it is typically linked to catastrophic losses generally resulting from adverse weather. For our commercial auto products, the reported frequency and severity trends include comprehensive coverage. Comprehensive coverage insures against damage to a customer’s vehicle due to various causes other than collision, such as windstorm, hail, theft, falling objects, and glass breakage.

Due to the impacts of shelter-in-place requirements that occurred throughout much of 2020, we believe that comparing current year frequency and severity to the prior year are not meaningful for our personal auto business. The trend comparisons for 2021 compare a two-year annualized change between 2021 and 2019 for personal auto frequency and severity for all coverages, excluding comprehensive coverage, which we believe are more insightful when trying to understand our current year profitability given the impact that COVID-19 restrictions had on our 2020 trends.

During 2021, we saw vehicle miles traveled and claims frequency per mile traveled increase relative to 2020, as states started lifting restrictions that were originally put in place in 2020 to help stop the spread of COVID-19.

Total personal auto incurred severity (i.e., average cost per claim, including both paid losses and the change in case reserves) on a calendar-year basis was up over the prior-year periods 9% in 2021, 10% in 2020, and 7% in 2019. On a calendar-year annualized basis, for 2021, incurred severity increased 9% compared to 2019. While the total change in severity is fairly consistent when comparing to prior year as well as to 2019, we believe the individual line coverages are not indicative of the underlying trends, primarily in the auto property damage and collision coverages due in part to the timing of salvage and

subrogation collections in 2020. Therefore, we continue to believe comparisons to 2019 are more insightful.

•2021 - On a 2021 year-over-2019 year annualized basis, severity increased 11% for our collision and bodily injury coverages, 8% for our property damage coverage, and 7% for our personal injury protection (PIP) coverage.

•2020 - Severity increased 14% for our PIP coverage, 12% for our bodily injury coverage, 9% for our property damage coverage, and 5% for our collision coverage.

•2019 - Severity increased 8% for our bodily injury coverage, 7% for our PIP coverage, and 6% for our collision and property damage coverages.

On a calendar-year basis, our commercial auto products incurred severity, excluding our TNC business, increased 14% in 2021, compared to 10% in 2020 and 19% in 2019. On a calendar-year annualized basis, for 2021, incurred severity increased 12% compared to 2019. Since the loss patterns in the TNC business are not indicative of our other commercial auto products, disclosing severity and frequency trends excluding that business is more indicative of our overall experience for the majority of our commercial auto products. In addition to general trends in the marketplace, the increase in our commercial auto products severity reflects increased medical costs and actuarially determined reserves due to accelerating paid loss trends and shifts in the mix of business to for-hire transportation, which has higher average severity than the business auto and contractor business market targets.

It is a challenge to estimate future severity, but we continue to monitor changes in the underlying costs, such as general inflation, used car prices, vehicle repair costs, medical costs, health care reform, court decisions, and jury verdicts, along with regulatory changes and other factors that may affect severity.

Our personal auto incurred frequency, on a calendar-year basis, was up 14% in 2021, down 24% in 2020, and down 3% in 2019. On a calendar-year annualized basis for 2021, incurred frequency was down 7% compared to 2019.

•2021 - On a 2021 year-over-2019 year annualized basis, frequency decreased 11% for our property damage and bodily injury coverages, 10% for our PIP coverage, and 3% for our collision coverage.

•2020 - Frequency decreased 28% for our PIP coverage, 27% for our property damage coverage, 25% for our bodily injury coverage, and 23% for our collision coverage. The significant decreases in 2020 reflect the decrease in vehicle miles traveled as a result of the shelter-in-place restrictions put in place to help stop the spread of COVID-19.

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•2019 - Frequency decreased 5% for our PIP coverage, 4% for our collision and property damage coverages, and 3% for our bodily injury coverage.

We closely monitor the changes in frequency, but the degree or direction of near-term frequency change is not something that we are able to predict with any degree of confidence, given the uncertainty of the current environment. We will continue to analyze trends to distinguish changes in our experience from other external factors, such as changes in the number of vehicles per household, miles driven, vehicle usage, gasoline prices, advances in vehicle safety, and unemployment rates, versus

those resulting from shifts in the mix of our business or changes in driving patterns, to allow us to react quickly to price for these trends and to reserve more accurately for our loss exposures.

On a year-over-year basis, incurred frequency in our Commercial Lines business, excluding TNC, saw an increase of about 9% in 2021, compared to decreases of about 15% in 2020 and 4% in 2019. On a calendar-year annualized basis, for 2021, incurred frequency decreased 4% compared to 2019. The frequency decrease was in part due to continued product segmentation and underwriting, which created a mix shift toward more preferred, lower-frequency, business.

The table below presents the actuarial adjustments implemented and the loss reserve development experienced on a companywide basis in the years ended December 31:

Total development consists of both actuarial adjustments and “all other development” on prior accident years. The actuarial adjustments represent the net changes made by our actuarial staff to both current and prior accident year reserves based on regularly scheduled reviews. Through these reviews, our actuaries identify and measure variances in the projected frequency and severity trends, which allow them to adjust the reserves to reflect the current cost trends. For our Property business, 100% of catastrophe losses are reviewed monthly, and any development on catastrophe reserves are included as part of the actuarial adjustments. For the Personal Lines and Commercial Lines businesses, development for catastrophe losses for the vehicle businesses would be reflected in “all other development,” discussed below, to the extent they relate to prior year reserves. We report these actuarial adjustments separately for the current and prior accident years to reflect these adjustments as part of the total prior accident years development.

“All other development” represents claims settling for more or less than reserved, emergence of unrecorded claims at rates different than anticipated in our incurred but not recorded (IBNR) reserves, and changes in reserve estimates on specific claims. Although we believe the development from both the actuarial adjustments and “all

other development” generally results from the same factors, we are unable to quantify the portion of the reserve development that might be applicable to any one or more of those underlying factors.

Our objective is to establish case and IBNR reserves that are adequate to cover all loss costs, while incurring minimal variation from the date the reserves are initially established until losses are fully developed. Our ability to meet this objective is impacted by many factors. Changes in case law, particularly related to PIP, can make it difficult to estimate reserves timely and with minimal variation. As reflected in the table above, we experienced favorable prior year development during 2021, compared to unfavorable prior year development in both 2020 and 2019.

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Reserve development primarily related to the following:

•2021- The favorable development of $127 million in our Personal Lines segment was offset by unfavorable development of $87 million in Commercial Lines and $36 million in Property. The Personal Lines development primarily reflects revised estimates of our per claim settlement costs, favorable PIP reform and litigation, partially offset by higher than anticipated bodily injury severity in our personal auto business. The unfavorable development in Commercial Lines is mostly due to an increase in bodily injury severity and the emergence of large bodily injury claims, while the Property business saw more previously closed claims reopen.

•2020 - Personal and Commercial Lines both recognized unfavorable development of $111 million and $98 million, respectively, while our Property business had $14 million of favorable development. Higher than anticipated frequency of reopened PIP claims in our personal auto business and an increase in bodily injury severity and the emergence of large bodily injury claims in our Commercial Lines business drove the unfavorable development.

•2019 - All segments recognized unfavorable prior year development in 2019. Higher than anticipated claims occurring in late 2018 but not reported until 2019, a higher than anticipated frequency of reopened PIP claims in our personal auto business and less salvage and subrogation recoveries for our special lines products contributed to the $135 million unfavorable development in Personal Lines. The $83 million of unfavorable development in Commercial Lines reflected increased bodily injury severity. Higher than anticipated homeowners and dwelling costs

drove the $12 million unfavorable development in the Property business.

See Note 6 – Loss and Loss Adjustment Expense Reserves for a more detailed discussion of our prior accident years development.

Underwriting Expenses

The companywide underwriting expense ratio (i.e., policy acquisition costs, other underwriting expenses, and, for 2020 only, policyholder credits, all net of fees and other revenues, expressed as a percentage of net premiums earned) decreased 4.1 points for 2021, compared to the prior year, primarily reflecting 2.7 points of policyholder credits issued in 2020. During 2021, we also decreased our advertising spend in an effort to improve profitability to reach our 96 combined ratio goal. In total, our advertising spend decreased 2% on a year-over-year basis, which had a 0.7 point impact on our companywide expense ratio. We also recognized a decrease in expense for uncollectible premium receivable accounts in 2021, compared to 2020, which contributed a favorable 0.4 point impact on the expense ratio, reflecting a change in consumer spending habits during the year.

To analyze underwriting expenses, we also review our non-acquisition expense ratio (NAER), which excludes costs related to policy acquisition, including advertising and agency commissions, from our underwriting expense ratio. By excluding acquisition costs from our underwriting expense ratio, we are able to understand costs other than those necessary to acquire new policies and grow the business. In 2021, our NAER decreased 3.7 points, 2.3 points, and 0.4 points in our Personal Lines, Commercial Lines, and Property businesses, respectively, compared to 2020. The decrease in the Personal and Commercial Lines NAER are primarily due to the policyholder credits issued in 2020. In comparing the 2021 NAER to 2019, the ratio decreased 0.7 points for Personal Lines, 0.9 points for Commercial Lines, and 0.8 points for Property.

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C. Growth

For our underwriting operations, we analyze growth in terms of both premiums and policies. Net premiums written represent the premiums from policies written during the period, less any premiums ceded to reinsurers. Net premiums earned, which are a function of the premiums written in the current and prior periods, are earned as revenue over the life of the policy using a daily earnings convention. Policies in force, our preferred measure of growth since it removes the variability due to rate changes or mix shifts, represents all policies under which coverage was in effect as of the end of the period specified.

1 Includes insurance for motorcycles, watercraft, RVs, and similar items.

To analyze growth, we review new policies, rate levels, and the retention characteristics of our segments. Although new policies are necessary to maintain a growing book of business, we recognize the importance of retaining our current customers as a critical component of our continued growth.

As shown in the tables below, we measure retention by policy life expectancy. We review our customer retention for our personal auto products using both a trailing 3-

month and a trailing 12-month period. We believe change in policy life expectancy using a trailing 12-month period measure is indicative of recent experience, mitigates the effects of month-to-month variability, and addresses seasonality. Although using a trailing 3-month measure does not address seasonality and can reflect more volatility, this measure is more responsive to current experience and generally can be an indicator of how retention rates are moving.

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At year-end 2021, we had 1.8 million more policies in force than at the end of 2020, with all of our segments contributing to this unit growth at varying degrees.

D. Personal Lines

The following table shows our year-over-year changes for our Personal Lines business:

New application growth in our Personal Lines products was down 2% during 2021, with our personal auto new application growth down 3% and our special lines new application growth up 4% during the year, driven by high demand in the new RV market.

We continued to see strong personal auto renewal application growth, which we believe was aided, in part, by our competitive product offerings, position in the marketplace, and rate decreases taken throughout 2020.

Personal auto quote volumes and rates of conversion (i.e., converting a quote to a sale) started the year strong. The beginning of 2021 benefited from the rate decreases taken in 2020 in response to lower vehicle miles driven caused by COVID-19 restrictions. As we started raising rates during the second half of 2021, both quotes and conversion began decreasing to end the year lower than the prior year.

Results varied by consumer segment. New business application growth was up slightly in our Diane consumer segment but down in the Sams, Wrights, and Robinsons during 2021. While quote volume decreased for Dianes, the rate of conversion increased. The Robinsons were the only consumer segment to see an increase in quote volume but a drop in conversion, which led to a decrease in Robinsons new business applications. Strong renewal growth for the Robinsons contributed to higher year-over-year growth in personal auto policies in force that outpaced our other consumer segments.

The decrease in our total personal auto new applications reflected actions taken during 2021 to address rising loss costs due to higher auto accident frequency and severity as vehicle miles traveled increased. In addition, new applications were elevated in 2020, due in part to the impact from PIP reform in Michigan, government stimulus checks, and resumed consumer shopping during the second half of 2020, following a significant decline in shopping early in the pandemic.

During 2021, rate increases became effective in 35 states, which had an average increase of about 11%. In the aggregate, on a countrywide basis, personal auto net rate increases, were up about 8% for the year. We also reduced advertising spend and tightened underwriting criteria in consumer segments where losses indicated rate inadequacy. These actions may have a negative impact on our policy life expectancy in the near term, as indicated by the decline in the trailing 3-month policy life expectancy.

Overall, our written premium per policy remained flat during 2021, compared to 2020. The rate increases implemented in 2021 were predominately effective later in the year and, therefore, did not have a significant impact on the written premium per policy.

We will continue to manage growth and profitability in accordance with our long-standing goal of growing as fast as we can as long as we can provide good customer service at or below a companywide 96 combined ratio on a calendar-year basis.

We report our Agency and Direct business results separately as components of our Personal Lines segment to provide further understanding of our products by distribution channel. The channel discussions below are focused on personal auto insurance since this product accounted for 94% of the Personal Lines segment net premiums written during 2021.

The Agency Business

The Agency business includes business written by more than 40,000 independent insurance agencies that represent Progressive, as well as brokerages in New York and California. During 2021, only 20 states and the District of Columbia generated new Agency auto application growth, including only two of our top 10 largest Agency states. Each of our consumer segments experienced a reduction in new applications through the Agency channel and, due to growth in policy renewals, growth in policies in force, except Sams who saw a decrease in policies in force.

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During 2021, we experienced a 1% year-over-year increase in Agency auto quotes and an 8% decrease in the rate of conversion. The Robinsons and Dianes saw an increase in quote volume, while Wrights and Sams saw a decrease. The rate of conversion was down significantly during 2021, compared to last year, reflecting rate increases and the impact from tightening underwriting criteria this year, along with elevated conversion rates last year due in part to coverage reform in Michigan and government stimulus. Written premium per policy increased 1% for both new and renewal Agency auto business compared to 2020.

The Direct Business

The Direct business includes business written directly by Progressive on the Internet, through mobile devices, and over the phone. During 2021, we generated new Direct auto application growth in 36 states and the District of Columbia, including four of our top 10 largest Direct states. In total, new applications were flat and renewal applications increased on a year-over-year basis. Strong growth in policy renewals contributed to the increase in policies in force across all consumer segments despite no overall growth in new business applications.

During 2021, we experienced a decrease in Direct auto quote volume of 4%, while our rate of conversion increased 3%. The decreases we experienced in our quote volume primarily reflect the decrease in advertising spending during 2021. All consumer segments saw a decrease in quotes of about 3% to 5%, with flat to a 2% increase in conversion on a year-over-year basis.

Written premium per policy for new and renewal Direct auto business decreased 3% and 1%, respectively, during 2021, compared to last year.

E. Commercial Lines

The following table shows our year-over-year changes for our Commercial Lines business, excluding our TNC, BOP, and Protective Insurance products:

Our Commercial Lines business operates in five traditional business markets, which include business auto, for-hire transportation, contractor, for-hire specialty, and tow markets, primarily written through the agency channel. We also write transportation network company (TNC) business and business owners policy (BOP) insurance. With the acquisition of Protective Insurance Corporation and its subsidiaries (Protective Insurance) during 2021, we expanded our portfolio of offerings to larger fleet, workers’ compensation coverage for trucking and public transportation fleets, along with trucking industry independent contractors, and affinity programs (see Note 17 – Acquisition for further discussion). Protective Insurance represented 1% of our 2021 companywide net premiums written from the date of acquisition.

Our commercial auto product experienced significant year-over-year new application growth in 2021, reflecting continued improvement in the economy and our competitiveness in the marketplace. Similar to our experience in our personal auto business, our Commercial Lines business volume for 2020 was negatively impacted by COVID-19 restrictions, which influenced the demands and general consumer habits for goods and services provided by our Commercial Lines customers and required that certain businesses undergo temporary closure. During the second half of 2020 and throughout 2021, Commercial Lines experienced a greater demand for shipping services in light of the pandemic, primarily in our for-hire transportation business market target. During 2021, demand in the for-hire transportation market was the primary driver of new customer shopping, which resulted in a 22% increase in quote volume and a 4% increase in the rate of conversion in our commercial auto business during 2021, compared to 2020.

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Written premium per policy for new and renewal commercial auto business increased 17% in 2021, compared to last year. The increases were primarily due to more vehicles per policy and a shift in the mix of business toward higher premium coverages. In aggregate, rate increases for commercial auto were about 4% in 2021. Our policy life expectancy increased compared to 2020, primarily due to shifts in the mix of business and product model enhancements.

Our TNC business experienced a strong increase in miles traveled, compared to 2020 when COVID-19 restrictions were in place. Our TNC net premiums written are impacted by miles driven and our 2021 net premiums written reflected the increase in rideshare miles that started to recover during the second half of 2020.

F. Property

The following table shows our year-over-year changes for our Property business:

Our Property business writes residential property insurance for homeowners, other property owners, and renters, in the agency and direct channels. During 2021, the Property business experienced an increase in new applications, primarily driven by growth in our direct channel. Since our Property segment was not significantly impacted by COVID-19 restrictions during 2020, the year-over-year comparisons are not as impacted as they are in the Personal and Commercial Lines segments.

During 2021, we made targeted rate increases in hail prone and more volatile weather states and will continue to increase rates where needed to get us more closely in line with our profitability target. In the aggregate, on a countrywide basis, Property net rate increases, were up about 7% for the year. We plan to take non-rate actions to reduce volatility in our results, which are primarily attributable to the impact from weather-related catastrophe losses. We plan to focus our growth efforts in states with traditionally less catastrophe exposure and limit growth in the coastal and hail prone states. We began implementing underwriting changes during the second half of 2021 and will continue to take steps to reduce our concentration risk. In the second quarter of 2022, we will start non-renewing about 60,000 policies in Florida and expect that it will take about one year to complete the process.

Despite rate increases taken during the last 12 months in our home product, we did not experience the same rate of change in written premium per policy on a year-over-year basis, primarily attributable to a shift in the mix of business to a larger share of renters policies, which have lower written premiums per policy. Our policy life expectancy decreased compared to last year, primarily due to targeted underwriting changes being made in states where losses indicate rate inadequacy.

G. Litigation

The Progressive Corporation and/or its insurance subsidiaries are named as defendants in various lawsuits arising out of claims made under insurance policies issued by its subsidiaries in the ordinary course of business. We consider all legal actions relating to such claims in establishing our loss and loss adjustment expense reserves.

In addition, various Progressive entities are named as defendants in a number of alleged class/collective/representative actions or individual lawsuits arising out of the operations of the insurance subsidiaries. These cases include those alleging damages as a result of, among other things, our practices in evaluating or paying medical or injury claims or benefits, including, but not limited to, personal injury protection, medical payments, uninsured motorist/underinsured motorist, bodily injury benefits, and workers’ compensation, and for reimbursing medical costs incurred by Medicare/Medicaid beneficiaries; our practices in evaluating or paying physical damage claims, including, but not limited to, our payment of total loss claims and labor rates paid to auto body repair shops; our insurance product design, including our response to the COVID-19 pandemic; employment matters; commercial disputes, including breach of contract; and cases challenging other aspects of our claims or marketing practices or other business operations. Other insurance companies and/or large employers face many of these same issues. During the last three years, we have settled several class/collective action and individual lawsuits. These settlements did not have a material effect on our financial condition, cash flows, or results of operations. See Note 12 – Litigation for a more detailed discussion.

H. Income Taxes

At December 31, 2021, we had recoverable income taxes of $19.2 million, which was reported as part of other assets, compared to net current income taxes payable of $163.5 million at December 31, 2020, which was reported as part of accounts payable, accrued expenses, and other liabilities on our consolidated balance sheets. The application of $103.3 million of the deposit that we made in 2019, to protect us against additional taxes and interest owed for 2017, reduced the liability that was recorded at December 31, 2020. See Note 5 – Income Taxes for further information.

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A deferred tax asset or liability is a tax benefit or expense, respectively, that is expected to be realized in a future tax return. At December 31, 2021 and 2020, we reported net deferred tax liabilities. We determined that we did not need a valuation allowance on our gross deferred tax assets for either year. Although realization of the gross deferred tax assets is not assured, management believes it is more likely than not that the gross deferred tax assets will be realized based on our expectation we will be able to fully utilize the deductions that are ultimately recognized for tax purposes.

Our effective tax rate was 20% for 2021 and 2020, compared to 23% for 2019. The decrease in the effective tax rate during 2021 and 2020, compared to 2019, was primarily attributable to the reversal of prior year tax credits in 2019, partially offset by $38.1 million of federal tax benefits resulting from our investments in renewable energy. See Note 5 – Income Taxes for a discussion of the reversal of prior year tax credits.

Consistent with prior years, we had no uncertain tax positions. See Note 5 – Income Taxes for further information.

IV.  RESULTS OF OPERATIONS – INVESTMENTS

A. Portfolio Summary

At year-end 2021, the fair value of our investment portfolio was $51.5 billion, compared to $47.5 billion at year-end 2020. The $4.0 billion increase from year-end 2020 primarily reflects positive investment results and solid cash flows from operations, net of shareholder dividends, common stock repurchases, and the payment of Senior Notes that matured during the year. Our investment income (interest and dividends) decreased 8% in 2021 and 10% in 2020 due to a decrease in the portfolio yield, which was partially offset by an increase in average assets.

B. Investment Results

Our management philosophy governing the portfolio is to evaluate investment results on a total return basis. The fully taxable equivalent (FTE) total return includes recurring investment income, adjusted to a fully taxable amount for certain securities that receive preferential tax treatment (e.g., municipal securities), and total net realized, and changes in total unrealized, gains (losses) on securities.

The following summarizes investment results for the years ended December 31:

The decrease in the book yield during 2021 reflects investing new cash from operations and portfolio turnover during the year in lower interest rate securities. The year-over-year decrease in our fixed-income total return was the result of an increase in interest rates and narrowing credit spreads during the year.

A further break-down of our FTE total returns for our fixed-income portfolio for the years ended December 31, follows:

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C. Portfolio Allocation

The composition of the investment portfolio at December 31, was:

1 Represents ratings at December 31, 2021 and 2020. Credit quality ratings are assigned by nationally recognized statistical rating organizations. To calculate the weighted average credit quality ratings, we weight individual securities based on fair value and assign a numeric score of 0-5, with non-investment-grade and non-rated securities assigned a score of 0-1. To the extent the weighted average of the ratings falls between AAA and AA+, we assign an internal rating of AAA-.

2 Includes $143.4 million and $95.5 million of net unsettled security purchase transactions at December 31, 2021 and 2020, respectively, with the offsetting payable included in other liabilities.

The total fair value of the portfolio at December 31, 2021 and 2020, included $4.2 billion and $6.2 billion, respectively, of securities held in a consolidated, non-insurance subsidiary of the holding company, net of any unsettled security transactions.

3 A portion of these investments were used to fund our common share dividends in January 2021. See Note 14 – Dividends for additional information.

Our asset allocation strategy is to maintain 0-25% of our portfolio in Group I securities, with the balance (75%-100%) of our portfolio in Group II securities.

We define Group I securities to include:

•common equities,

•nonredeemable preferred stocks,

•redeemable preferred stocks, except for 50% of investment-grade redeemable preferred stocks with cumulative dividends, which are included in Group II, and

•all other non-investment-grade fixed-maturity securities.

Group II securities include:

•short-term securities, and

•all other fixed-maturity securities, including 50% of investment-grade redeemable preferred stocks with cumulative dividends.

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We believe this asset allocation strategy allows us to appropriately assess the risks associated with these securities for capital purposes and is in line with the treatment by our regulators. Included in our Group I

securities are investments entered into by our corporate development group and the asset allocation strategy for these investments is 1.5% of our total portfolio fair value.

The following table shows the composition of our Group I and Group II securities at December 31:

1 We held no non-investment-grade redeemable preferred stocks at December 31, 2021 or 2020.

To determine the allocation between Group I and Group II, we use the credit ratings from models provided by the National Association of Insurance Commissioners (NAIC) for classifying our residential and commercial mortgage-backed securities, excluding interest-only securities, and the credit ratings from nationally recognized statistical rating organizations (NRSROs) for all other debt securities.

NAIC ratings are based on a model that considers the book price of our securities when assessing the probability of future losses in assigning a credit rating. As a result, NAIC ratings can vary from credit ratings issued by NRSROs. Management believes NAIC ratings more accurately reflect our risk profile when determining the asset allocation between Group I and II securities.

Unrealized Gains and Losses

As of December 31, 2021, our fixed-maturity portfolio had pretax net unrealized gains, recorded as part of accumulated other comprehensive income, of $71.4 million, compared to $1,206.6 million at December 31, 2020. The decrease in unrealized gains from 2020 was primarily due to increasing interest rates and narrowing credit spreads, which resulted in valuation declines in all fixed-maturity sectors, most

prominently in the U.S. government, corporate debt, and commercial mortgage-backed portfolios.

See Note 2 – Investments for further details on our gross unrealized gains (losses).

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Holding Period Gains (Losses)

The following table provides the balance and activity for both the gross and net holding period gains (losses) for 2021:

Changes in holding period gains (losses), similar to unrealized gains (losses) in our fixed-maturity portfolio, are the result of changes in market performance as well as sales of securities based on various portfolio management decisions.

Fixed-Income Securities

The fixed-income portfolio is managed internally and includes fixed-maturity securities, short-term investments, and nonredeemable preferred stocks. Following are the primary exposures for the fixed-income portfolio.

Interest Rate Risk This risk includes the change in value resulting from movements in the underlying market rates of debt securities held. We manage this risk by maintaining the portfolio’s duration (a measure of the portfolio’s exposure to changes in interest rates) between 1.5 and 5 years. The duration of the fixed-income portfolio was 3.0 years at December 31, 2021, compared to 2.9 years at December 31, 2020. The distribution of duration and convexity (i.e., a measure of the speed at which the duration of a security is expected to change based on a rise or fall in interest rates) is monitored on a regular basis.

The duration distribution of our fixed-income portfolio, excluding short-term investments, represented by the interest rate sensitivity of the comparable benchmark U.S. Treasury Notes, at December 31, was:

Credit Rate Risk This exposure is managed by maintaining an A+ minimum average portfolio credit quality rating, as defined by NRSROs. Our credit quality rating was above the minimum threshold during both 2021 and 2020.

The credit quality distribution of the fixed-income portfolio at December 31, was:

1 The ratings in the table above are assigned by NRSROs. The increase in 2021 reflects a shift in the mix of our investments and not credit rating downgrades.

Concentration Risk Our investment constraints limit investment in a single issuer, other than U.S. Treasury Notes or a state’s general obligation bonds, to 2.5% of shareholders’ equity, while the single issuer guideline on preferred stocks and/or non-investment-grade debt is 1.25% of shareholders’ equity. Additionally, the guideline applicable to any state’s general obligation bonds is 6% of shareholders’ equity. We consider concentration risk both overall and in the context of individual asset classes and

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sectors, including but not limited to common equities, residential and commercial mortgage-backed securities, municipal bonds, and high-yield bonds. At December 31, 2021 and 2020, we were within all of the constraints described above.

Prepayment and Extension Risk We are exposed to this risk especially in our asset-backed (i.e., structured product) and preferred stock portfolios. Prepayment risk includes the risk of early redemption of security principal that may need to be reinvested at less attractive rates. Extension risk includes the risk that a security will not be redeemed when anticipated, and that the security that is extended will have a lower yield than a security we might be able to obtain by reinvesting the expected redemption principal. Our holdings of different types of structured debt and preferred securities help manage this risk. During 2021 and 2020, we did not experience significant adverse prepayment or extension of principal relative to our cash flow expectations in the portfolio.

Liquidity Risk Our overall portfolio remains very liquid and we believe that it is sufficient to meet expected near-term liquidity requirements. The short-to-intermediate duration of our portfolio provides a source of liquidity, as we expect approximately $4.5 billion, or 16.8%, of principal repayment from our fixed-income portfolio, excluding U.S. Treasury Notes and short-term investments, during 2022. Cash from interest and dividend payments provides an additional source of recurring liquidity.

The duration of our U.S. government obligations, which are included in the fixed-income portfolio, was comprised of the following at December 31, 2021:

ASSET-BACKED SECURITIES

Included in the fixed-income portfolio are asset-backed securities, which were comprised of the following at December 31:

1 The credit quality ratings are assigned by NRSROs.

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Residential Mortgage-Backed Securities (RMBS) The following table details the credit quality rating and fair value of our RMBS, along with the loan classification and a comparison of the fair value at December 31, 2021, to our original investment value (adjusted for returns of principal, amortization, and write-downs):

1 The credit quality ratings are assigned by NRSROs; when we assigned the NAIC ratings for our RMBS, 92% of our non-investment-grade securities were rated investment grade and reported as Group II securities, with the remainder classified as Group I.

2 The securities in this category are insured by a Government Sponsored Entity (GSE) and/or collateralized by mortgage loans insured by the Federal Housing Administration (FHA) or the U.S. Department of Veteran Affairs (VA).

In the residential mortgage-backed sector, our portfolio consists of bonds that are backed by high-quality borrowers in the underlying mortgages or have strong structural protections. During 2021, we increased our exposure to short-duration credit bonds where the underlying loans had meaningful home price appreciation.

Commercial Mortgage-Backed Securities (CMBS) The following table details the credit quality rating and fair value of our CMBS, along with a comparison of the fair value at December 31, 2021, to our original investment value (adjusted for returns of principal, amortization, and write-downs):

1The credit quality ratings are assigned by NRSROs; when we assigned the NAIC ratings for our CMBS, 57% of our non-investment-grade securities were rated investment grade and reported as Group II securities, with the remainder classified as Group I.

The CMBS portfolio experienced lower volatility in 2021. New issuance in the single-asset single-borrower (SASB) market were at a record high in 2021 and were the primary source of additions into our portfolio. Credit spreads in the investment-grade SASB market were range-bound throughout the year, reaching their tightest levels in late second quarter and early third quarter. As a result, our net

purchases slowed and were asset- and deal-specific based on both credit spreads and our assessment of underlying collateral quality. As credit spreads widened in the third and fourth quarters of 2021, we continued to add to the portfolio at a measured pace, with a particular focus on high-quality office and multi-family apartments.

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Other Asset-Backed Securities (OABS) The following table details the credit quality rating and fair value of our OABS, along with a comparison of the fair value at December 31, 2021, to our original investment value (adjusted for returns of principal, amortization, and write-downs):

As valuations across other asset classes were more attractive, our OABS portfolio offered less relative value. During 2021, our allocation to collateralized loan obligation securities increased as they provided better return opportunities than other sectors.

MUNICIPAL SECURITIES

The following table details the credit quality rating of our municipal securities at December 31, 2021, without the benefit of credit or bond insurance:

Included in revenue bonds were $488.4 million of single-family housing revenue bonds issued by state housing finance agencies, of which $358.7 million were supported by individual mortgages held by the state housing finance agencies and $129.7 million were supported by mortgage-backed securities.

Of the programs supported by mortgage-backed securities, 78% were collateralized by Ginnie Mae mortgages, which are fully guaranteed by the U.S. government; the remaining 22% were collateralized by Fannie Mae and Freddie Mac mortgages. Of the programs supported by individual mortgages held by the state housing finance agencies, the overall credit quality rating was AA+. Most of these mortgages were supported by FHA, VA, or private mortgage insurance providers.

As spreads tightened during 2021, we reduced our allocation to the municipal sector. Our sales were primarily in revenue bonds that were purchased in 2020 when spreads were wider and offered attractive performance opportunities. At 2021 valuations, municipal bonds were less attractive to us on a relative value basis.

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CORPORATE SECURITIES

The following table details the credit quality rating of our corporate securities at December 31, 2021:

During 2021, the size of our corporate debt portfolio saw a modest increase. Activity during the year was primarily a combination of selling some of our investment-grade longer-maturity holdings we believed had exceeded our performance objective, adding investment-grade securities with more favorable risk reward profiles, and continuing to selectively increase our allocation to high-yield securities that we believed would benefit from the continuation of the economic recovery.

We shortened the maturity profile of the corporate portfolio during 2021 to reduce credit risk in a narrowing credit spread environment. The maturity profile was 2.9 years at December 31, 2021, compared to 3.8 years at December 31, 2020. Overall, our corporate securities, as a percentage of the fixed-income portfolio, has remained consistent since the end of 2020 at approximately 23%.

PREFERRED STOCKS – REDEEMABLE AND NONREDEEMABLE

The table below shows the exposure break-down for our preferred stocks by sector and rating at year end:

The majority of our preferred securities have fixed-rate dividends until a call date and then, if not called, generally convert to floating-rate dividends. The interest rate duration of our preferred securities is calculated to reflect the call, floor, and floating-rate features. Although a preferred security will remain outstanding if not called, its interest rate duration will reflect the variable nature of the dividend. Our non-investment-grade preferred stocks were with issuers that maintain investment-grade senior debt ratings.

We also face the risk that dividend payments on our preferred stock holdings could be deferred for one or more periods or skipped entirely. As of December 31, 2021, all of our preferred securities continued to pay their dividends

in full and on time. Approximately 84% of our preferred stock securities pay dividends that have tax preferential characteristics, while the balance pay dividends that are fully taxable.

During 2021, we had a small net increase in our preferred stock portfolio and the portfolio was 3.9% of our fixed-income portfolio at December 31, 2021, compared to 3.7% at December 31, 2020. We primarily purchased nonredeemable preferred securities that we believe had attractive risk/reward profiles. Certain holdings were called and redeemed at par value during the year. The portfolio valuation increased throughout the year as credit spreads compressed.

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Common Equities

Common equities, as reported on the consolidated balance sheets at December 31, were comprised of the following:

The majority of our common stock portfolio consists of individual holdings selected based on their contribution to the correlation with the Russell 1000 Index. We held 839 out of 1,030, or 81%, of the common stocks comprising the index at December 31, 2021, which made up 96% of the total market capitalization of the index. At December 31, 2021 and 2020, the year-to-date total return of the indexed portfolio, based on GAAP income, was within the designated tracking error, which is +/- 50 basis points.

The other risk investments consist of limited partnership interests. During 2021, we funded $4.8 million on partnership investments and have an open funding commitment of $7.4 million at December 31, 2021. In addition, partnership investments with a value of $7.4 million at December 31, 2021 were assumed as part of our acquisition of Protective Insurance.

The following is a summary of our indexed common stock portfolio holdings by sector compared to the Russell 1000 Index composition:

For 2021, our common stock portfolio FTE total return was 33.4%, compared to 26.4% for the Russell 1000 Index, due to common stocks we hold outside of the index.

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V. CRITICAL ACCOUNTING POLICIES

Progressive is required to make certain estimates and assumptions when preparing its financial statements and accompanying notes in conformity with GAAP. Actual results could differ from those estimates in a variety of areas. The three areas we view as most critical with respect to the application of estimates and assumptions is the establishment of our loss reserves, the methods for measuring expected credit losses on financial instruments, and our analysis of goodwill for impairment.

A. Loss and LAE Reserves

Loss and loss adjustment expense (LAE) reserves represent our best estimate of our ultimate liability for losses and LAE relating to events that occurred prior to the end of any given accounting period but have not yet been paid. At December 31, 2021, we had $21.4 billion of net loss and LAE reserves, which included $17.3 billion of case reserves and $4.1 billion of incurred but not recorded (IBNR) reserves. Personal auto liability and commercial auto liability reserves represent approximately 90% of our total carried net reserves. For this reason, the following discussion focuses on our vehicle businesses.

We do not review our loss reserves on a macro level and, therefore, do not derive a companywide range of reserves to compare to a standard deviation. Instead, we review a large majority of our reserves by product/state subset combinations on a quarterly time frame, with the remaining reserves generally reviewed on a semiannual basis. A change in our scheduled reviews of a particular subset of the business depends on the size of the subset or emerging issues relating to the product or state. By reviewing the reserves at such a detailed level, we have the ability to identify and measure variances in the trends by state, product, and line coverage that otherwise would not be seen on a consolidated basis. We believe our comprehensive process of reviewing at a subset level provides us more meaningful estimates of our aggregate loss reserves.

In analyzing the ultimate accident year loss and LAE experience, our actuarial staff reviews in detail, at the subset level, frequency (number of losses per earned car year), severity (dollars of loss per each claim), and average premium (dollars of premium per earned car year), as well as the frequency and severity of our LAE costs. The loss ratio, a primary measure of loss experience, is equal to the product of frequency times severity divided by the average premium. The average premium for personal and

commercial auto businesses is not estimated. The actual frequency experienced will vary depending on the change in the mix in class of drivers we insure, but the frequency projections for these lines of business are generally stable in the short term, because a large majority of the parties involved in an accident report their claims within a short time period after the occurrence. The severity experienced by Progressive is much more difficult to estimate, especially for injury claims, since severity is affected by changes in underlying costs, such as medical costs, jury verdicts, and regulatory changes. In addition, severity will vary relative to the change in our mix of business by limit.

Assumptions regarding needed reserve levels made by the actuarial staff take into consideration influences on available historical data that reduce the predictiveness of our projected future loss costs. Internal considerations that are process-related, which generally result from changes in our claims organization’s activities, include claim closure rates, the number of claims that are closed without payment, and the level of the claims representatives’ estimates of the needed case reserve for each claim. These changes and their effect on the historical data are studied at the state level versus on a larger, less indicative, countrywide basis.

External items considered include the litigation atmosphere, changes in medical costs, and the availability of services to resolve claims. These also are better understood at the state level versus at a more macro, countrywide level. The impact COVID-19 has on the items above, as well as additional considerations such as the type of accident and change in reporting patterns, are closely monitored.

At December 31, 2021, we had $26.2 billion of carried gross reserves and $21.4 billion of net reserves (net of reinsurance recoverables on unpaid losses). Our net reserve balance implicitly assumes that the loss and LAE severity for accident year 2021 over accident year 2020 would be 9.2% higher for personal auto liability and 11.5% higher for commercial auto liability. As discussed above, the severity estimates are influenced by many variables that are difficult to precisely quantify and which influence the final amount of claims settlements. That, coupled with changes in internal claims practices, the legal environment, and state regulatory requirements, requires significant judgment in the estimate of the needed reserves to be carried.

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The following table highlights what the effect would be to our carried loss and LAE reserves, on a net basis, as of December 31, 2021, if during 2022 we were to experience the indicated change in our estimate of severity for the 2021 accident year (i.e., claims that occurred in 2021):

1 Includes reserves for personal and commercial auto physical damage claims and our non-auto lines of business; no change in estimates is presented due to the immaterial level of these reserves.

Note: Every percentage point change in our estimate of severity for the 2021 accident year would affect our personal auto liability reserves by $154.5 million and our commercial auto reserves by $35.7 million.

Our 2021 year-end loss and LAE reserve balance also includes claims from prior years. Claims that occurred in 2021, 2020, and 2019, in the aggregate, accounted for approximately 92% of our reserve balance. If during 2022 we were to experience the indicated change in our estimate of severity for the total of the prior three accident years (i.e., 2021, 2020, and 2019), the effect to our year-end 2021 reserve balances would be as follows:

1 Includes reserves for personal and commercial auto physical damage claims and our non-auto lines of business; no change in estimates is presented due to the immaterial level of these reserves.

Note: Every percentage point change in our estimate of severity for the 2021, 2020, and 2019 accident years would affect our personal auto liability reserves by $409.4 million and our commercial auto reserves by $84.5 million.

Our best estimate of the appropriate amount for our reserves as of year-end 2021 is included in our financial statements for the year. Our goal is to ensure that total reserves are adequate to cover all loss costs, while sustaining minimal variation from the time reserves are initially established until losses are fully developed. At the point in time when reserves are set, we have no way of knowing whether our reserve estimates will prove to be high or low, or whether one of the alternative scenarios discussed above is reasonably likely to occur. The above tables show the potential favorable or unfavorable development we will realize if our estimates miss by 2% or 4%.

B. Credit Losses on Financial Instruments

An allowance for credit losses is established when the ultimate realization of a financial instrument is determined to be impaired due to a credit event. Measurement of expected credit losses is based on judgment when considering relevant information about past events, including historical loss experience, current conditions, and forecasts of the collectability of the reported financial instrument. The allowance for expected credit losses is measured and recorded at the point ultimate recoverability of the financial instrument is expected to be impaired, including upon the initial recognition of the financial instrument, where warranted. We evaluate financial instrument credit losses related to our available-for-sale securities, reinsurance recoverables, and premiums receivables.

Available-For-Sale Securities

We routinely monitor our fixed-maturity portfolio for pricing changes that might indicate potential losses exist and perform detailed reviews of securities with unrealized

losses to determine if an allowance for credit losses, a change to an existing allowance (recovery or additional loss), or a write-off for an amount deemed uncollectible needs to be recorded. In such cases, changes in fair value are evaluated to determine the extent to which such changes are attributable to: (i) credit related losses, which are specific to the issuer (e.g., financial conditions, business prospects) where the present value of cash flows expected to be collected is lower than the amortized cost basis of the security or (ii) market related factors, such as interest rates or credit spreads.

If we do not expect to hold the security to allow for a potential recovery of those expected losses, we will write down the security to fair value and recognize a realized loss in the comprehensive income statement.

For securities whose losses are credit related losses, and for which we do not intend to sell in the near term, we will review the non-market components to determine if a

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potential future credit loss exists, based on existing financial data available related to the fixed-maturity securities. If we anticipate that a credit loss exists, we will record an allowance for the credit loss and recognize a realized loss in the comprehensive income statement. For all securities for which an allowance for credit losses has been established, we will re-evaluate the securities, at least quarterly, to determine if further deterioration has occurred or if we project a subsequent recovery in the expected losses, which would require an adjustment to the allowance for credit losses. To the extent we determine that we will likely sell a security prior to recovery of the credit loss, or if the loss is deemed uncollectible, we will write-down the security to its fair value and reverse any credit loss allowance that may have been previously recorded.

For an unrealized loss that is determined to be related to current market conditions, we will not record an allowance for credit losses or a write down to fair value. We will continue to monitor these securities to determine if underlying factors other than the current market conditions are contributing to the loss in value.

Based on an analysis of our fixed-maturity portfolio, we have determined our allowance for credit losses related to available-for-sale securities was not material to our financial condition or results of operations for the periods ending December 31, 2021 and 2020.

Reinsurance Recoverables

We routinely monitor changes in the credit quality and concentration risks of the reinsurers who are counterparties to our reinsurance recoverables. At December 31, 2021, approximately 62% of our reinsurance recoverables were held in several mandatory state pools, including the Michigan Catastrophic Claims Association, Florida Hurricane Catastrophe Fund, and North Carolina Reinsurance Facility, and in plans where we act as a servicing agent to state-mandated involuntary plans for commercial vehicles (Commercial Automobile Insurance Procedures/Plans) and as a participant in the “Write Your Own” program for federally regulated plans for flood (National Flood Insurance Program). All of these programs

are governed by insurance regulations. The remaining balance of our recoverables are composed of voluntary external contractual arrangements that primarily relate to the Property business and to our transportation network company business written by our Commercial Lines business. For these privately placed reinsurance arrangements, we regularly monitor reinsurer credit strength and analyze our reinsurance recoverable balances for expected credit losses at least quarterly, or more frequently if indicators of reinsurer credit deterioration, either individually or in aggregate, exists. For at-risk uncollateralized recoverable balances, we evaluate a number of reinsurer specific factors, including reinsurer credit quality rating, credit rating outlook, historical experience, reinsurer surplus, recoverable duration, and collateralization composition in respect to our net exposure (i.e., the reinsurance recoverable amount less premiums payable to the reinsurer, where the right to offset exists). Based on this assessment, reinsurers with credit risks will be individually subject to a credit default model, and an allowance for credit loss will be established, where warranted.

Based on the analysis of reinsurers, we have determined our allowance for credit losses related to our reinsurance recoverables was not material to our financial condition or results of operations for the period ending December 31, 2021.

Premium Receivables

We routinely monitor historical premium collections data for our premiums receivable balances, through actuarial analyses, to project the future recoverability of recorded receivables. As part of these analyses, we determine historical collectability rates and modify those rates based on current economic assumptions to establish estimates on default. These rates are applied to the stratified subsets of our consumer receivable balances, based on the age of the receivable to establish an allowance for credit losses. See Note 1 – Reporting and Accounting Policies for a description of our process and a roll forward of the allowance account during 2021 and 2020.

C. Goodwill

Goodwill represents the amount we paid to acquire companies in excess of the company’s fair value at the date of acquisition. At December 31, 2021, we had goodwill of $452.7 million. The goodwill related to the April 1, 2015, acquisition of a controlling interest in ARX Holding Corp. (ARX) accounted for 98% of this balance and, therefore, the detailed discussion is focused on the ARX goodwill balance.

We test our goodwill balance for impairment at the reporting unit level annually as of October 1, or more frequently if indicators of impairment exist. Reporting units represent the lowest operational level of our business for which management regularly reviews discrete financial operating results. To test for impairment, we may elect to

perform a qualitative or quantitative analysis, based on our judgment of the relevant qualitative factors that exist at the time we perform the valuation, including the consideration of the length of time lapsed since the previous quantitative assessment.

The qualitative analysis is performed by assessing certain trends and factors, actual and forecasted operating information (including growth rates and profitability), industry and macroeconomic data, and other relevant qualitative factors.

The quantitative goodwill impairment assessment consists of comparing the fair value of the reporting unit to its carrying value. If the fair value is less than its carrying

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value, an impairment charge must be recognized for the difference. To determine the fair value of a reporting unit, we use discounted cash flow models. The models use assumptions including, but not limited to, discount rate, and forecasted growth, profitability, investment return, and capital requirements. The assumptions and estimates are consistent with those we believe other non-related marketplace participants would use and are based on management’s best estimates at the time of the analysis.

The goodwill from the ARX acquisition of $446 million is allocated equally to the Agency auto reporting unit and the ARX reporting unit. We performed a qualitative impairment analysis over the goodwill allocated to the Agency auto reporting unit. The results of the qualitative analysis did not indicate a need to perform an additional quantitative analysis.

For the $223 million of goodwill allocated to the ARX reporting unit, we elected to perform a quantitative analysis, due to the results generated by ARX over the past several years. While we used the assumptions listed above, we believe that the most significant assumptions used to determine the estimated fair value were the discount rate and projected underwriting profitability of ARX.

The discount rate used was consistent with the weighted average cost of capital that we determined was likely to be expected by a market participant. The discount rate was based on expected rates of return, including consideration of company specific risk premiums. The discount rate used in our discounted cash flow model may be impacted by adverse changes in the macroeconomic environment, volatility in the equity and debt markets, or other industry specific factors, including, but not limited to, changes in catastrophe patterns.

The underwriting profitability assumptions are based on long-term forecasts of ARX’s combined ratio. Underwriting profitability is dependent on ability to underwrite and price risks accurately and factors in weather-related catastrophe losses under historical conditions. In addition, when estimating our future underwriting profitability, we factored in changes currently underway to return ARX to profitability, including raising rates, implementing underwriting restrictions, and non-renewing certain policies in Florida to reduce our concentration risk.

As of the evaluation date, the calculated fair value of ARX was nearly 2.7 times greater than its carrying value and, therefore, there was no indication of impairment to the goodwill related to the ARX acquisition. Changes in our assumptions, strategic decisions, or economic and competitive conditions could result in a decline in fair value and result in a goodwill impairment charge in the future. Using the same growth, investment returns, and capital requirement assumptions in the discounted cash flow model, we determined that our discount factor could change by 4% or the forecasted underwriting profitability for ARX could decline by 6% before the fair value of ARX would be less than the current carrying value of the reporting unit indicating that goodwill might be impaired. We will continue to monitor changes in the reporting unit results and general macroeconomic conditions to determine if future impairment analysis is warranted.

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Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Investors are cautioned that certain statements in this report not based upon historical fact are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements often use words such as “estimate,” “expect,” “intend,” “plan,” “believe,” and other words and terms of similar meaning, or are tied to future periods, in connection with a discussion of future operating or financial performance. Forward-looking statements are based on current expectations and projections about future events, and are subject to certain risks, assumptions and uncertainties that could cause actual events and results to differ materially from those discussed herein. These risks and uncertainties include, without limitation, uncertainties related to:

•our ability to underwrite and price risks accurately and to charge adequate rates to policyholders;

•our ability to establish accurate loss reserves;

•the impact of severe weather, other catastrophe events and climate change;

•the effectiveness of our reinsurance programs and the continued availability of reinsurance and performance by reinsurers;

•the highly competitive nature of property-casualty insurance markets;

•whether we innovate effectively and respond to our competitors’ initiatives;

•whether we effectively manage complexity as we develop and deliver products and customer experiences;

•how intellectual property rights affect our competitiveness and our business operations;

•whether we adjust claims accurately;

•our ability to maintain a recognized and trusted brand;

•our ability to attract, develop and retain talent and maintain appropriate staffing levels;

•compliance with complex and changing laws and regulations;

•litigation challenging our business practices, and those of our competitors and other companies;

•the impacts of a security breach or other attack involving our computer systems or the systems of one or more of our vendors;

•the secure and uninterrupted operation of the facilities, systems, and business functions that are critical to our business;

•the success of our efforts to acquire or develop new products or enter into new areas of business and navigate related risks;

•our continued ability to send and accept electronic payments;

•the possible impairment of our goodwill or intangible assets;

•the performance of our fixed-income and equity investment portfolios;

•the impact on our investment returns and strategies from regulations and societal pressures relating to environmental, social, and other public policy matters;

•the elimination of the London Interbank Offered Rate;

•our continued ability to access our cash accounts and/or convert securities into cash on favorable terms;

•the impact if one or more parties with which we enter into significant contracts or transact business fail to perform;

•legal restrictions on our insurance subsidiaries’ ability to pay dividends to The Progressive Corporation;

•limitations on our ability to pay dividends on our common shares under the terms of our outstanding preferred shares;

•our ability to obtain capital when necessary to support our business and potential growth;

•evaluations by credit rating and other rating agencies;

•the variable nature of our common share dividend policy;

•whether our investments in certain tax-advantaged projects generate the anticipated returns;

•the impact from not managing to short-term earnings expectations in light of our goal to maximize the long-term value of the enterprise;

•the impacts of the COVID-19 pandemic and measures taken in response; and

•other matters described from time to time in our releases and publications, and in our periodic reports and other documents filed with the United States Securities and Exchange Commission, including, without limitation, the Risk Factors section of our Annual Report on Form 10-K for the year ending December 31, 2021.

In addition, investors should be aware that generally accepted accounting principles prescribe when a company may reserve for particular risks, including litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when we establish reserves for one or more contingencies. Also, our regular reserve reviews may result in adjustments of varying magnitude as additional information regarding claims activity becomes known. Reported results, therefore, may be volatile in certain accounting periods.

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