In short, fast quality growth, coupled with very acceptable margins, is adding significantly to the intrinsic value of the enterprise and our current and future earnings potential. We might be considerably less happy with the current margins without such strong growth, which by itself is a short-term increment to higher combined ratios.
Fast growth in and of itself is a challenge and maintaining staffing at constant quality puts an additional strain on all parts of the organization from recruiting and training to supervision and quality control. These are the strains we hope for but recognize the fine line between short-term gains and long-term erosion of our ability to serve our customers at the levels we demand of ourselves and maintain brand quality - so far we are managing this challenge exceptionally well, but we assume nothing and maintain our vigilance. Expenses are a concurrent challenge with new growth, catastrophe response, and some adjustments in our Property business, but all are where we expect them to be, as is the outlook.
Our ASI Property business was able to complete a couple of significant transactions that we had anticipated in some form since taking our control position. One was to exit the commercial property business, which, while small relative to the overall business, was not strategic to Progressive and presented a different risk profile from the core business. The exit was in effect an exchange of ASI’s commercial business for a business that was parallel to the ASI residential home business in Florida. The residential property business that we acquired was originally established as a separate risk and capital pool for different investors in the early history of ASI with servicing, underwriting, and pricing provided to this company for a fee by ASI. Given our strategy, and reduced need for separate capital, the ability to assume more of what we want, while disposing of what we did not want to a company that has a different strategy, was a perfect outcome.
