In the recently completed June quarter PGR wrote down a substantial portion of the goodwill from its acquisition of ARX Holding Corp., the parent holding company of American Strategic Insurance (ASI) in St. Petersburg. The amount, $224.8 in the month of June, is marked with an annotation in the June report as "Reflects partial write down of goodwill associated with the ARX Holding Corp. acquisition."
Likely the problem is that ASI "gunned" its property insurance business, writing business with one expectation of coverage that does not reflect what customers were led to believe. Hence although paid claims matched expectations of the ASI group, PGR is losing business as customers drop off the platform. In some cases, PGR may be losing multiple lines of business associated with ASI, including auto insurance, to other carriers.
Some of these issues were likely known in May 2021 or earlier. PGR was weak prior to the June 2022 earnings release, indicating that news of the writedown may have become known outside PGR.
Long term, PGR will eventually recover, as the ethics that came with the ASI acquisition do not appear to have infected the rest of PGR. Look for some more turbulence over the rest of 2022 and perhaps 2023 as PGR figures out what to do with its property insurance business.
Updates posted 2:35 p.m. EDT:
Review of a sell side report indicates that ASI impairment is not fully showing up in analysis.
Morgan Stanley analyst Michael Phillips maintains Progressive (NYSE:PGR) with a Equal-Weight and raises the price target from $115 to $121. (Benzinga)
MKM Partners Maintains Buy Rating, raises its price target from $125.00 to $135.00.
Reinsurancene says PGR "has seen a significant dent in its H1 2022 results due to investments losses and the writedown of ARX Holdings impacting the property segment." PGR holds common stocks in its investment portfolio. Progressive said:
“Based on our analysis, we concluded that the fair value of our Property segment is less than the current carrying value, primarily driven by reduced forecasted profitability given the magnitude of recent weather events, as well as other factors impacting our plans to restore our Property business to target profitability in a timely fashion.
“There is no indication of impairment on the remaining $227.9 million of goodwill, which is primarily attributable to our Personal Lines Agency business and related to the ARX acquisition.”
(As noted above, ARX held the ASI business.)
References, added 7/19/22:
https://www.americanstrategic.com/about-asi/our-companies-and-affiliations
"Progressive Insurance Acquiring Homeowners Group ASI for $875M; December 16, 2014" https://www.insurancejournal.com/news/national/2014/12/16/350221.htm
- $875M to bring ownership from 5% to 67% (+62%, implied valuation of $1,411M as of 2014)
- This article has 21 comments primarily from agents and similar close parties.
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