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Despite a significant reduction in personal auto insurance rates in Florida this year, Progressive may soon find itself in the unenviable position of sending small refunds to thousands of current and former policyholders.

The corporation’s quarterly 10Q filing with the U.S. Securities and Exchange Commission reports that it could exceed Florida’s statutory profit limit for the three-year period from 2023 to 2025. By law (Florida Statutes 627.066 and 627.915) the insurer must report the excessive profits on a form. The state Office of Insurance Regulation may then require Progressive to issue pro-rated cash refunds or to give credits on renewal premiums. It’s known in the industry as “regurgitation.”

The statute provides a formula to be used to calculate an auto insurer’s underwriting profits: “Excessive profit has been realized if there has been an underwriting gain for the 3 most recent calendar-accident years combined which is greater than the anticipated underwriting profit plus 5 percent of earned premiums for those calendar-accident years,” the Florida law reads.

The statute also indicates how the underwriting gain should be computed: The sum of the accident-year incurred losses and loss adjustment expenses as of March 31 of the following year, developed to an ultimate basis, plus the administrative and selling expenses incurred in the calendar year, plus policyholder dividends applicable to the calendar year, will be subtracted from the calendar-year earned premium to determine the underwriting gain or loss.

Progressive officials could not be reached for comment Wednesday. The notes that a final determination on profit level won’t be known for some time, due to several factors, including the outcome of the 2025 hurricane season, which could affect loss reserves. More will be known by the end of the year, the filing explained.

Property insurance companies in Florida face a similar limit on profits, usually considered to be about 4.5%, according to state law and former regulators. But property insurers can share some of their profit with affiliated companies, such as managing general agents and holding company subsidiaries – something that policyholder advocates and lawmakers have complained about as premiums rose sharply in Florida in recent years.

Auto insurers in the state may not have the option of diluting profits among affiliates, a former regulator has said.

Progressive and other large auto writers this year have enjoyed significant loss adjustment expense savings, the result of 2023 Florida legislative changes that stemmed one-way attorney fees and curtailed excessive claims litigation.

The top 5 auto insurers in Florida, in fact, have asked for an average rate decrease of about 6% this year, Florida’s insurance commissioner touted in a bulletin last month.

The rate decrease may not be enough to allow Progressive to avoid the profit cap.

“Despite these actions, it is possible that our profit for personal auto in Florida for the 2023 to 2025 period will exceed the statutory profit limit that a Florida statute imposes on the profit that any insurance group can earn on personal auto insurance over any three-calendar-year period,” the SEC filing notes.

Florida regulators have rarely found violations of the excess-profits statute, an OIR spokesperson said. The most recent was in June of this year, when Insurance Commissioner Michael Yaworsky signed a consent order, requiring California Casualty Insurance Co. to issue or renewal credits worth $341,500 to auto policyholders. Before that, OIR in 2021 asked Nationwide Mutual Insurance or credit some $11.5 million in excess profits on private passenger auto insurance.

The potential amount of any Progressive refunds was not noted in the insurer’s SEC filing. But it could be substantial. Since the legislative reforms were enacted, “we have experienced strong profitability in our Florida personal auto business,” the company noted. Other top auto writers in Florida that are publicly traded did not mention excess profits in their filings.

Some, but not all, states appear to have some type of limits on profits. New Jersey, for example, operates under a modified “Clifford Formula,” fixing insurance profits at about 3.5%, based on a number of underlying factors, according to the state’s Division of Insurance and published court rulings.

Topics Profit Loss Florida Auto