10Segment Information
We write personal auto and other specialty property-casualty insurance and provide related services throughout the United States. Our Personal Lines segment writes insurance for personal autos and recreational vehicles. The Personal Lines segment is comprised of both the Agency and Direct businesses. The Agency business includes business written by our network of more than 30,000 independent insurance agencies, including brokerages in New York and California, and strategic alliance business relationships (other insurance companies, financial institutions, and national agencies). The Direct business includes business written directly by us online and by phone.
Our Commercial Auto segment writes primary liability and physical damage insurance for automobiles and trucks owned by small businesses in the specialty truck and business auto markets. This segment is distributed through both the independent agency and direct channels.
Our other indemnity businesses primarily include writing professional liability insurance for community banks and managing a small amount of run-off businesses.
Our service businesses provide insurance-related services, including processing CAIP business and serving as an agent for homeowners insurance through our program with three unaffiliated homeowner insurance companies.
All segment revenues are generated from external customers and we do not have a reliance on any major customer.
We evaluate segment profitability based on pretax underwriting profit (loss) for the Personal Lines and Commercial Auto businesses. In addition, we use underwriting profit (loss) for the other indemnity businesses and pretax profit (loss) for the service businesses. Pretax underwriting profit (loss) is calculated as follows:
| Net premiums earned | |
| Less: Losses and loss adjustment expenses | |
| Policy acquisition costs | |
| Other underwriting expenses | |
| Pretax underwriting profit (loss) |
Service business profit (loss) is the difference between service business revenues and service business expenses.
Expense allocations are based on certain assumptions and estimates primarily related to revenue and volume; stated segment operating results would change if different methods were applied. We do not allocate assets or income taxes to operating segments. In addition, we do not separately identify depreciation and amortization expense by segment and such disclosure would be impractical. Companywide depreciation expense was $87.3 million in 2009, $99.1 million in 2008, and $106.9 million in 2007. The accounting policies of the operating segments are the same as those described in Note 1 – Reporting and Accounting Policies.
Following are the operating results for the years ended December 31:
 2009 |
2008 | 2007 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (millions) | Revenues | Pretax Profit (Loss) |
Revenues | Pretax Profit (Loss) |
Revenues | Pretax Profit (Loss) |
||||||
| Personal Lines | ||||||||||||
| Agency | $ | 7,414.8 | $ | 579.2 | $ | 7,362.0 | $ | 360.7 | $ | 7,636.4 | $ | 500.2 |
| Direct | 4,951.1 | 357.9 | 4,485.8 | 274.8 | 4,372.6 | 339.9 | ||||||
| Total Personal Lines1 | 12,365.9 | 937.1 | 11,847.8 | 635.5 | 12,009.0 | 840.1 | ||||||
| Commercial Auto | 1,623.3 | 229.8 | 1,762.2 | 94.1 | 1,846.9 | 185.7 | ||||||
| Other indemnity | 23.6 | 8.7 | 21.4 | 5.3 | 21.5 | (.7) | ||||||
| Total underwriting operations | 14,012.8 | 1,175.6 | 13,631.4 | 734.9 | 13,877.4 | 1,025.1 | ||||||
| Service businesses | 16.7 | (2.7) | 16.1 | (4.3) | 22.3 | 1.8 | ||||||
| Investments2 | 534.1 | 523.0 | (807.4) | (816.2) | 787.1 | 774.7 | ||||||
| Interest expense | — | (139.0) | — | (136.7) | — | (108.6) | ||||||
| Consolidated total | $ | 14,563.6 | $ | 1,556.9 | $ | 12,840.1 | $ | (222.3) | $ | 14,686.8 | $ | 1,693.0 |
1) Personal auto insurance accounted for 90% of the total Personal Lines segment net premiums earned in 2009 and 2008, and 91% in 2007; insurance for our special lines products (e.g., motorcycles, ATVs, RVs, mobile homes, watercraft, and snowmobiles) accounted for the balance of the Personal Lines net premiums earned.
2) Revenues represent recurring investment income and net realized gains (losses) on securities; pretax profit is net of investment expenses.
Progressive’s management uses underwriting margin and combined ratio as primary measures of underwriting profitability. The underwriting margin is the pretax underwriting profit (loss) expressed as a percentage of net premiums earned (i.e., revenues from insurance operations). Combined ratio is the complement of the underwriting margin. Following are the underwriting margins/combined ratios for our underwriting operations for the years ended December 31:
| 2009 |
2008 | 2007 | ||||
|---|---|---|---|---|---|---|
| Underwriting Margin |
Combined Ratio |
Underwriting Margin |
Combined Ratio |
Underwriting Margin |
Combined Ratio |
|
| Personal Lines | ||||||
| Agency | 7.8% | 92.2 | 4.9% | 95.1 | 6.5% | 93.5 |
| Direct | 7.2 | 92.8 | 6.1 | 93.9 | 7.8 | 92.2 |
| Total Personal Lines | 7.6 | 92.4 | 5.4 | 94.6 | 7.0 | 93.0 |
| Commercial Auto | 14.2 | 85.8 | 5.3 | 94.7 | 10.1 | 89.9 |
| Other indemnity1 | NM | NM | NM | NM | NM | NM |
| Total underwriting operations | 8.4 | 91.6 | 5.4 | 94.6 | 7.4 | 92.6 |
1) Underwriting margins/combined ratios are not meaningful (NM) for our other indemnity businesses due to the low level of premiums earned by, and the variability of loss costs in, such businesses.