Basis of Presentation

9 Months Ended

Sep. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation — The accompanying consolidated financial statements include the accounts of The Progressive Corporation, its wholly owned insurance and non-insurance subsidiaries, and affiliates. On April 1, 2020, The Progressive Corporation acquired the remaining outstanding stock of ARX Holding Corp. (ARX), bringing Progressive’s ownership interest of the outstanding capital stock of ARX to 100.0%, compared to 87.1% at September 30, 2019 and December 31, 2019. See Note 12 – Redeemable Noncontrolling Interest for further discussion.

The consolidated financial statements reflect all normal recurring adjustments that, in the opinion of management, were necessary for a fair statement of the results for the interim periods presented. The results of operations for the period ended September 30, 2020, are not necessarily indicative of the results expected for the full year. These consolidated financial statements and the notes thereto should be read in conjunction with Progressive’s audited financial statements and accompanying notes included in Exhibit 13 to our Annual Report on Form 10-K for the year ended December 31, 2019 (“2019 Annual Report to Shareholders”).

We perform analyses to evaluate our premium receivables for expected credit losses. As part of these analyses, we determine historical collectability rates and modify those rates based on current economic assumptions, to establish estimates on default. These rates are applied to the stratified subsets of our consumer receivable balances, based on the age of the receivable, to establish an allowance for credit loss. Progressive’s premiums receivable are short-term in nature and, generally, premiums are collected prior to providing risk coverage, minimizing our exposure to credit risk.

The following table summarizes changes in our allowance for credit loss exposure on our premium receivables:


(millions)	Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020
Allowance for credit loss, beginning of period	$	437.9	$	283.2
Increase (decrease) in allowance1	(3.6)		362.9
Write-offs2	(121.1)		(332.9)
Allowance for credit loss, end of period	$	313.2	$	313.2

1Represents the incremental period increase (decrease) in other underwriting expenses.

2Represents portion of allowance that is reversed when premium receivables are written off.

To measure the amount of potential credit losses on our premiums receivable balances, we analyze our ultimate at-risk exposure of the receivables and apply actuarially determined factors to calculate our estimated credit loss based on historical and current collections experience, taking into account any unusual circumstances, such as moratoriums or other programs that may suspend collections. During the first and second quarters of 2020, we estimated the allowance for credit losses considering the impact from the moratoriums and billing leniency efforts that we put in place from mid-March through mid-May 2020, to help policyholders who may have been experiencing financial hardships as a result of the spread of the novel coronavirus, COVID-19, and federal, state, and local social distancing and shelter-in-place restrictions (“COVID-19 restrictions”). During the third quarter, we reduced the allowance based on the actual collections that were recognized once the moratoriums and billing leniency efforts were lifted. Premiums receivable balances are written off once we have exhausted our collection efforts.

Other assets on the consolidated balance sheets include certain long-lived assets that are considered “held for sale.” The fair value of these held for sale assets, less the estimated sales costs, was $27.1 million at September 30, 2020, $43.7 million at September 30, 2019, and $32.9 million at December 31, 2019.

Included on our consolidated balance sheets are certain operating leases for office space, computer equipment, and vehicles. The leased assets represent our right to use an underlying asset for the lease term and are included as a component of other assets, and the lease liabilities, represent our obligation to make lease payments arising from the leases and are included as a component of accounts payable, accrued expenses, and other liabilities.

The following table summarizes the carrying amounts of our operating leased assets and liabilities:


(millions)	September 30, 2020		September 30, 2019		December 31, 2019
Operating lease assets	$	174.1	$	190.5	$	188.2
Operating lease liabilities	186.2		204.1		201.5

See Note 13 – Leases in our 2019 Annual Report to Shareholders for further discussion.