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Progressive's (PGR) Senior Notes Rated by A.M. Best, Moody's

The Progressive Corporation’s PGR recently issued senior notes received rating from credit rating agency, A.M. Best. The rating giant assigned Long-Term Issue Credit Rating (Long-Term IR) of “a” to 4.125% $850 million senior unsecured notes. The notes are scheduled to mature on 2047.

The insurer intends to deploy the proceeds from the issuance to either pay back 6.70% Fixed-to-Floating Rate Junior Subordinated Debentures or for general corporate purpose. Though the debt-to-capital ratio will deteriorate following the new notes issuance, the metric will remain within A.M. Best’s guidelines, supporting its current ratings.

Earlier, Moody’s Investor Service, an affiliate of Moody’s Corporation MCO had assigned A2 rating with stable outlook to the senior notes. The rating indicates the company’s strong presence in the U.S. auto insurance market, excellent underwriting capabilities and a robust balance sheet. However, high operating leverage, stiff competition and adverse regulation in personal insurance lines are negatives. Nonetheless, the rating agency stated the rating can be upgraded if Progressive’s ratio of statutory net written premiums to surplus remains lower than 2x and consolidated financial leverage remains less than 20%. However, the rating might be downgraded if the ratio of statutory net written premiums to surplus rises above 3x, core profitability like combined ratio remains more than 96% for an prolonged period, consolidated financial leverage moves beyond 30%, or gross or net catastrophe exposure relative to consolidated shareholders' equity increases considerably.

Progressive, however, is capitalizing on the low interest rate environment. The insurer has been consciously making efforts to lower its interest burden on borrowings by issuing debt in the low rate environment. In turn, these efforts will facilitate margin expansion. Though the Fed has recently raised rates – two consecutive hikes in the last two quarters – the rate environment remains low.

Shares of Progressive gained 10.68% year to date, significantly outperforming the Zacks categorized Property and Casualty Insurance industry’s increase of 1.83%. We believe that the company’s solid operational performance, strategic initiatives as well as robust capital and liquidity position will continue to drive the stock higher in the future.



Progressive is scheduled to report first-quarter 2017 earnings on Apr 18, before the market opens. Our proven model shows that the insurer is likely to deliver another quarter of positive surprise because it has the right combination of a favorable Zacks Rank #2 (Buy) and Earnings ESP of +2.94%.

Stocks to Consider

Some better-ranked stocks from the finance sector are American Financial Group, Inc. AFG and Infinity Property and Casualty Corporation IPCC. Both stocks sport a Zacks Rank #1 (Strong Buy). You can see https://www.zacks.com/stocks/buy-list/?ADID=zp_1link&ICI... _1link">the complete list of today’s Zacks #1 Rank stocks here.

American Financial Group engages primarily in property and casualty (P&C) insurance with focus on specialized commercial products for businesses. Shares of the company gained 7.01% year to date.

Infinity Property and Casualty, through its subsidiaries, provides personal automobile insurance products in the United States. Shares of the company gained 6.05% year to date.

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Moody's Corporation (MCO): Free Stock Analysis Report
 
Progressive Corporation (The) (PGR): Free Stock Analysis Report
 
American Financial Group, Inc. (AFG): Free Stock Analysis Report
 
Infinity Property and Casualty Corporation (IPCC): Free Stock Analysis Report
 
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