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Letter to the Editor

Progressive Releases August Results and Announces Dutch Auction Tender Offer for 17.1 Million Shares

Results for August 2004, include $13.3 million, 1.3 loss ratio points, of catastrophic losses incurred due to Hurricane Charley.

The Progressive Corporation also announced that it is commencing a modified "Dutch auction" tender offer to purchase up to 17.1 million of its outstanding Common Shares, $1.00 par value. Under the terms of the offer, which expires at 12:00 midnight, New York City time on Friday, October 15, 2004 (unless extended), shareholders of the company may tender some or all of their shares at prices not greater than $88.00 nor less than $78.00 per share. At the close of the tender offer, the company will determine the lowest per share price in that range which will result in the purchase of 17.1 million shares or such lesser number of shares as may be properly tendered. If the offer is oversubscribed, Progressive has the right to purchase up to approximately 4.4 million additional shares without extending the offer, and the company may select a higher purchase price within the range for all shares purchased pursuant to the tender offer, if necessary, to purchase such additional shares. All shareholders whose shares are accepted in the offer will receive the purchase price determined by the company, even if their shares were tendered at a lower price.

As of September 10, 2004, Progressive had approximately 217.0 million Common Shares outstanding. The closing price of the Common Shares on the New York Stock Exchange on September 10, 2004 was $79.25 per share. The 17.1 million shares proposed to be purchased in the Dutch auction tender offer represent approximately 7.9% of the Common Shares outstanding as of September 10, 2004. The company intends to pay for tendered shares with cash generated by the sale of securities in the Company's investment portfolios.

After evaluating the company's financial condition, business prospects and capital needs, the Board of Directors has determined that the company currently has a significant amount of capital on hand in excess of what is needed to support its insurance operations, fund its corporate obligations and prepare for various contingencies. In view of this situation and Progressive's publicly stated policy to return capital to shareholders when appropriate, the Board determined that this tender offer would be a prudent use of the company's excess capital and an efficient means to return capital to shareholders who choose to participate. The tender offer thus represents an opportunity for the company to return capital to shareholders who elect to tender their shares, while at the same time increasing nontendering shareholders' proportionate interests in Progressive.

The company believes that after completing the tender offer, its remaining capital on hand and cash flows from operations will be sufficient to support the company's insurance operations, corporate obligations and risk contingencies, including the catastrophic, weather-related losses discussed above.

The company has been advised by its directors and executive officers that they will not tender any shares in the tender offer, other than Peter B. Lewis, the Chairman of the Board of Directors, who has advised the Company that he intends to tender 1.1 million shares. Lewis will not tender his shares at a specified price, but will accept the price determined by the company pursuant to the Dutch auction tender offer process. Lewis has also notified the company that he has terminated his Rule 10b5-1 trading plans under which an aggregate of 2,392,000 shares could be sold over a two-year period ending July 2006. Prior to termination and as previously disclosed, 446,300 shares had been sold under the plans. Lewis currently owns beneficially 8.4 percent of the company's common shares outstanding. In the event that the company purchases all 1.1 million shares tendered by Lewis and the company purchases a total of 17.1 million shares in the tender offer, Lewis will own beneficially approximately 17.2 million of the company's common shares, or approximately 8.6 percent of the shares outstanding, after completion of the tender offer.

Details of the offer will be mailed to Progressive's shareholders. This announcement is neither an offer to purchase nor a solicitation of an offer to sell shares.

An A.M. Best press release commented on the Progressive stock offer. The text, in part, read:

While Progressive maintains high underwriting leverage, driven by significant premium growth in recent years, this is mitigated by consistently strong operating earnings that have contributed to solid annual surplus growth. Consequently, Progressive's financial strength and debt ratings remain unaffected.

The ratings reflect Progressive's solid capitalization, strong operating performance and sustainable competitive advantages, which have enabled it to become a market leader in the private passenger automobile insurance sector. The strong operating performance is derived from underwriting earnings and steady net investment income growth, resulting in significant annual surplus growth. Progressive continues to benefit from an innovative management team with creative operating strategies, brand name recognition, a dynamic multiple channel distribution platform and extensive utilization of cutting edge underwriting and claims handling technology.

The rating further considers the financial flexibility of The Progressive Corporation, which maintains moderate financial leverage, a conservative portfolio and excellent cash flow to fund fixed charges. Although the share repurchase will reduce the funds held at Progressive Investment Company, Inc., a non-insurance investment affiliate, it will still maintain a substantial amount of liquid assets that provide a source of funds for interest expense, debt maturity and most importantly for capital allocation to the operating entities.

©2004 Collision Repair Industry INSIGHT
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