The 2005 annual report of Progressive presents an impressive graph. It depicts the rarity of the recent trend of profitable underwriting. The profits of the last three years have been unmatched since the late seventies. Inquiring minds will want to know: what's the similarity? For my part, I believe that investment returns had been miserable then, as they have been recently. When profitable investments justify underwriting insurance at a loss (as was the case in the eighties and nineties), then companies compete to irrational pricing levels. If this reasoning is correct, there is no reason to expect that the cycle will change dramatically, as investment profits are still uncertain.
(By the way, thank my daughter Tessa for this first blog image. Without her help, I could not have gotten it done.)
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