Progressive : August 2016 Loss Reserve Report Appendix

The Progressive Corporation

August 2016

Table of Contents - Appendix

Section VI - Loss Reserve Case Study

Introduction 1

Exhibit A - Accident Period Analysis 3

Exhibit B - Accident Period Average Incurred Loss Development 15

Exhibit C - Record Period Analysis 21

Exhibit D - Summary of Estimated IBNR 25

Exhibit E - IBNR Analysis 31

Section VII - Loss Adjustment Expense Reserve Case Study

Introduction 40

Exhibit DCC - Defense and Cost Containment Expense Reserve Analysis 42

Exhibit ADJ - Adjusting and Other Expense Reserve Analysis 50

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Based on our segment reviews, we may revise any or all of the following in order to achieve the desired changes to our reserves:

• Case reserves can be revised by changing:

   Average reserves, which are applied to open features below the threshold and are determined as part of the review process for the applicable loss reserving segment.

   The inflation factor, which is applied to average reserves in months following a review.

• IBNR reserves can be revised by changing:

 IBNR factors, which are applied to trailing periods of earned premium.

In this section, we present an example of a loss reserve review for a sample segment. Most segments are defined by state, product, and coverage grouping with reasonably similar loss characteristics.

This case study will illustrate how we estimate the adequacy of our loss reserves by reviewing loss data organized in three different ways:

Type of Loss Reserve

Claims Data Organized by

By definition, the following identities are always true as of the designated evaluation date:

Carried reserves and paid losses are known statistics and reconcile with our financial records. However, we use judgment in the estimation of the ultimate losses. As stated above, we make these estimations by accident period, record period, and record within accident period. Our objective is to estimate how losses will develop over time using past development as a key indicator. In order to make reasonable selections, we look at several parameters and also consider the business issues that underlie the data.

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We produce several exhibits to summarize our reviews which are used in our discussions with management. Throughout this appendix, we present and provide an overview of the key exhibits.

As mentioned in the report, in our exhibits and explanations, we may use the terms "claim" and "feature" interchangeably. However, the Progressive definition of "feature" is the smallest divisible part of a claim, i.e., it is a loss on one coverage for one person or property, so one claim can have multiple features. Even though we may generically refer to "claims" in our discussion, our analysis is actually done at the "feature" level. In addition, the term "counts" generally means "number of features."

Note that rounding in the exhibits as well as the order of calculation may make some of the figures in the case study appear slightly out of balance.

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