Giverny Capital, an asset management firm, published its fourth-quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly net return of 10.73% was delivered by the fund for the fourth quarter of 2021, slightly below its benchmark, the S&P 500 Index, which delivered an 11.03% gain for the same period. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
Giverny Capital Asset Management, in its Q4 2021 investor letter, mentioned The Progressive Corporation (NYSE: PGR) and discussed its stance on the firm. The Progressive Corporation is a Mayfield, Ohio-based insurance company with a $63.5 billion market capitalization. PGR delivered a 5.91% return since the beginning of the year, while its 12-month returns are up by 24.69%. The stock closed at $108.72 per share on January 28, 2022.
Here is what Giverny Capital Asset Management has to say about The Progressive Corporation in its Q4 2021 investor letter:
“Progressive Corp. had a rough year that caused it to drop to our sixth-largest position from number three a year ago. Progressive is the country’s most efficient auto insurer, typically earning 7%-9% profit margins underwriting auto policies. The industry overall earns about 1% from underwriting. Progressive has a number of structural advantages that contribute to its superior profitability, including low customer acquisition costs (despite all the TV ads), superior data analytics that help it set accurate rates, efficient claims processes, and more.
The entire industry enjoyed a profit windfall in 2020 as Americans stayed home during the pandemic, driving fewer miles and getting in fewer accidents. In 2021, not only did they drive more, but they also drove worse. Accident frequency didn’t change much but severity did as there were more high-speed collisions. No underwriting model foresaw that strange turn of events. Worse, as supply chain challenges limited the production of new cars, the value of used cars soared. That Toyota that got insured based on an estimate of its value of $25,000? When the car got totaled, the cost to replace it might’ve been $35,000.
In the third quarter, Progressive lost money underwriting insurance for the first time in 20 years. The stock dipped based on fears that Progressive’s competitive position was slipping. But as the rest of the industry subsequently reported even worse results, it became clear that Progressive’s advantages had not eroded; rather, the entire industry had been stunned by the uptick in severe accidents and inflation in used car prices.
As I write this, it’s clear the industry will push through rate increases in 2022. When rates rise, consumers tend to shop more. Historically, when they shop more, Progressive grows faster because of
its ability to match the best rates to the right risks. We remain convinced Progressive will be a much larger company in five years than it is today.”
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Our calculations show that The Progressive Corporation (NYSE: PGR) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. PGR was in 47 hedge fund portfolios at the end of the third quarter of 2021, compared to 44 funds in the previous quarter. The Progressive Corporation (NYSE: PGR) delivered a 14.59% return in the past 3 months.
In December 2021, we also shared another hedge fund’s views on PGR in another article. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.
Disclosure: None. This article is originally published at Insider Monkey.
