10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

þ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2006

or

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                                            to                                           

Commission file number 1-9518

THE PROGRESSIVE CORPORATION

(Exact name of registrant as specified in its charter)

Ohio	34-0963169
(State or other jurisdiction	(I.R.S. Employer
incorporation or organization)	Identification No.)
6300 Wilson Mills Road, Mayfield Village, Ohio	44143
(Address of principal executive offices)	(Zip Code)

(440) 461-5000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

	Name of each exchange on
Title of each class	which registered
Common Shares, $1.00 Par Value	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. þ Yes o No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes þ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

The aggregate market value of the voting stock held by non-affiliates of the registrant at June 30, 2006: $18,495,328,214

The number of the registrant’s Common Shares, $1.00 par value, outstanding as of January 31, 2007: 744,477,835

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 20, 2007, to be filed on or about March 9, 2007, and the Annual Report to Shareholders for the year ended December 31, 2006, included as Exhibit 13 to this Form 10-K, are incorporated by reference in Parts I, II, III and IV hereof.

TABLE OF CONTENTS

PART I
	ITEM 1. BUSINESS
	ITEM 1A. RISK FACTORS
	ITEM 1B. UNRESOLVED STAFF COMMENTS
	ITEM 2. PROPERTIES
	ITEM 3. LEGAL PROCEEDINGS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
	ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
	ITEM 6. SELECTED FINANCIAL DATA
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	ITEM 9A. CONTROLS AND PROCEDURES
	ITEM 9B. OTHER INFORMATION
PART III
	ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
	ITEM 11. EXECUTIVE COMPENSATION
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
	ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
	ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
	ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT INDEX
EX-10.8
EX-10.16
EX-10.64
EX-11
EX-12
EX-13
EX-21
EX-24
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-99

INTRODUCTION

Portions of the information included in The Progressive Corporation’s Proxy Statement to be filed on or about March 9, 2007, for the Annual Meeting of Shareholders to be held on April 20, 2007 (the “Proxy Statement”) have been incorporated by reference herein and are identified under the appropriate items in this Form 10-K. The 2006 Annual Report to Shareholders (the “Annual Report”) of The Progressive Corporation and subsidiaries, which will be attached as an Appendix to the 2007 Proxy Statement, is included as Exhibit 13 to this Form 10-K. Cross references to relevant sections of the Annual Report are included under the appropriate items of this Form 10-K.

PART I

ITEM 1. BUSINESS

(a) General Development of Business

The Progressive insurance organization began business in 1937. The Progressive Corporation, an insurance holding company formed in 1965, currently has 67 subsidiaries and 1 mutual insurance company affiliate. Progressive’s insurance subsidiaries and affiliate provide personal and commercial automobile insurance and other specialty property-casualty insurance and related services throughout the United States. Our property-casualty insurance products protect our customers against collision and physical damage to their motor vehicles, uninsured and underinsured bodily injury, and liability to others for personal injury or property damage arising out of the use of those vehicles. Our non-insurance subsidiaries generally support our insurance and investment operations.

(b) Financial Information About Segments

Incorporated by reference from Note 9, Segment Information, beginning on page App.-A-21 of the Annual Report, which is included as Exhibit 13 to this Form 10-K.

(c) Narrative Description of Business

We offer a number of personal and commercial property-casualty insurance products primarily related to motor vehicles. Net premiums written were $14.1 billion in 2006, compared to $14.0 billion in 2005 and $13.4 billion in 2004. Our combined ratio, calculated in accordance with accounting principles generally accepted in the United States of America (GAAP), was 86.7 in 2006, 88.1 in 2005 and 85.1 in 2004.

Organization

We write private passenger auto insurance policies in 49 states (all except Massachusetts) and the District of Columbia. Auto insurance differs greatly by community because regulations and legal decisions vary by state and because traffic, law enforcement, cultural attitudes, insurance agents, medical services and auto repair services vary by community. To respond to these differences in our Personal Lines product management areas, these 50 jurisdictions are organized into three geographical regions. There are two General Managers in each region, one to handle the business written through independent agents and one to handle the business written directly. Our Commercial Auto Business is organized by product on a national basis, with state-level product managers responsible for local implementation. In addition, to service our customers countrywide, the Claims business area is organized into six geographical regions with a General Manager each responsible for a different region. All of our business area General Managers report directly to the Group Presidents (discussed below). Our business written through independent agents has its own Customer Service units; our business written directly has Sales and Customer Service units. Both businesses share claims loss reporting units that take initial claims reporting calls from customers. These Customer Service groups are located at call centers in Mayfield Village, Ohio; Austin, Texas; Tampa, Florida; Sacramento, California; Tempe, Arizona; and Colorado Springs, Colorado.

Our executive management team sets policy and makes key strategic decisions and includes the Chief Executive Officer, Chief Financial Officer, Chief Legal Officer, Chief Investment Officer, Chief Information Officer and Chief Human Resource Officer, as well as our four Group Presidents (Agency, Direct, Commercial Auto and

2

Claims). The Group Presidents are challenged to develop and manage product offerings and customer service processes tailored to the unique requirements of customers who select our insurance products, buying policies through the distribution channel of their choice.

Personal Lines

Our Personal Lines segment writes insurance for private passenger automobiles and recreational and other vehicles. This business generally offers more than one program in a single state, with each program targeted to a specific distribution channel, market or customer group. The Personal Lines Businesses accounted for 86% of total net premiums written in 2006, compared to 87% in 2005 and 88% in 2004. Our strategy is to be the low-cost provider of a full line of auto insurance products with superior service, distributed through whichever channel the customer prefers.

We ranked third in industry market share for 2005 based on net premiums written, and believe that we held this position for 2006. We compete with approximately 280 other insurance companies/groups that each writes over $5 million of private passenger auto insurance premiums annually in the United States. The top 15 private passenger auto insurers comprised about 75% of this market. For 2006, the estimated industry net premiums written for personal auto insurance in the United States was $161.1 billion, and our share of this market was approximately 7.6%, compared to $159.5 billion and 7.6%, respectively, in 2005, and $157.3 billion and 7.5% in 2004. Except as otherwise noted, all industry data and our market share or ranking in the industry either were derived directly from data reported by A.M. Best Company Inc. (“A.M. Best”) or were estimated using A.M. Best data as the primary source.

Private passenger automobile insurance represented 91% of total Personal Lines net premiums written by Progressive in 2006, compared to 92% in both 2005 and 2004. Our objective is to offer an accurate rate for virtually all drivers. Volume potential is driven by our price competitiveness, brand recognition and the actions of our competitors, among other factors. See “Competitive Factors” on page 5 of this report for further discussion.

Our specialty Personal Lines products include insurance for motorcycles, recreational vehicles, mobile homes, watercraft, snowmobiles and similar items. These products represented 9% of the total Personal Lines net premiums written and are primarily distributed by independent agents and brokers. Due to the nature of these products, we typically experience higher losses during the warmer weather months. Our competitors are specialty companies and large multi-line insurance carriers. Although industry figures are not available, based on our analysis of this market, we believe that we are one of the largest participants in the specialty personal lines market. Based on our review of the markets, we have determined that we have been the market share leader for personal watercraft insurance since 2002 and for the motorcycle product since 1998.

We also started offering a personal umbrella insurance product in select markets in 2006. This pilot program is currently being offered through certain independent agents to existing Agency Business customers in five states. The pilot program will continue to be evaluated against certain performance criteria before a decision is made as to whether to expand this product offering to additional markets.

The Personal Lines business is generated either by independent agents and brokers or written directly online or by phone. The Agency Business includes business written by our network of more than 30,000 independent insurance agencies located throughout the United States, as well as brokerages in New York and California. These independent insurance agents and brokers have the ability to place business with Progressive for specified insurance coverages within prescribed underwriting guidelines, subject to compliance with company-mandated procedures. Our guidelines prescribe the kinds and amounts of coverage that may be written and the premium rates that may be charged for specified categories of risk. The agents and brokers do not have authority on behalf of Progressive to establish underwriting guidelines, develop rates, settle or adjust claims, or enter into other transactions or commitments. The Agency Business also writes business through strategic alliance business relationships with other insurance companies, financial institutions and national brokerage agencies. In 2006, the total net premiums written through the Agency Business represented 64% of our Personal Lines volume, compared to 66% in 2005 and 68% in 2004.

The Direct Business includes business written directly by us online and over the phone. Net premiums written in the Direct Business were 36%, 34% and 32% of our Personal Lines volume in 2006, 2005 and 2004, respectively.

3

Commercial Auto

The Commercial Auto Business writes primary liability and physical damage insurance for automobiles and trucks owned by small businesses and represented 14% of our total net premiums written in 2006, compared to 13% in 2005 and 12% in 2004. The majority of our Commercial Auto customers insure three or fewer vehicles. The Commercial Auto Business, which is primarily distributed through the independent agency channel, operates in the specialty truck and light and local commercial auto markets. The specialty truck commercial auto market, which accounts for slightly more than half of the total Commercial Auto premiums and approximately 40% of the vehicles we insure in this business, includes dump trucks, logging trucks, tow trucks, local cartage and other short-haul commercial vehicles. The remainder is in the light and local commercial auto market, which includes autos, vans and pick-up trucks used by artisans, such as contractors, landscapers and plumbers, and a variety of other small businesses. Although the Commercial Auto Business differs from Personal Lines auto in its customer bases and products written, both businesses require the same fundamental skills, including disciplined underwriting and pricing, as well as excellent claims service. We compete on a countrywide basis with approximately 210 other companies/groups, each with over $5 million of commercial auto premiums written annually. Our Commercial Auto Business ranked third in market share on a national basis in 2005 based on direct written premiums, and we believe that we are in a virtual tie with the other two companies as co-leaders in the commercial auto insurance market for 2006.

Other Indemnity Businesses

Our other indemnity businesses, which represented less than 1% of our 2006, 2005 and 2004 net premiums written, include providing professional liability insurance to community banks, principally directors and officers liability insurance. We reinsure the majority of the risk on these coverages with a small mutual reinsurer controlled by its bank customers and various other reinsurance entities. The program, sponsored by the American Bankers Association, insures over 1,700 banks, representing every state. In addition, our other indemnity businesses include managing our run-off businesses.

Service Businesses

Our service businesses include providing insurance-related services, primarily policy issuance and claims adjusting services in 25 states for Commercial Auto Insurance Procedures/Plans (CAIP), which are state-supervised plans serving the involuntary markets. We process approximately 50% of the premiums in the CAIP market and compete with two other providers countrywide. As a service provider, we collect fee revenue that is earned on a pro rata basis over the term of the related policies. We cede 100% of the premiums and losses to the plans. Reimbursements to us from the CAIP plans are required by state laws and regulations. Material violations of contractual service standards can result in ceding restrictions for the affected business. We have maintained, and plan to continue to maintain, compliance with these standards. Any changes in our participation as a CAIP service provider would not materially affect our financial condition, results of operations or cash flows. The service businesses represented less than 1% of our 2006, 2005 and 2004 revenues.

Our service business also includes our total loss concierge program. This program is primarily a customer-service initiative, through which we help policyholders and claimants find and purchase a replacement vehicle when their automobile is declared to be a total loss.

Claims

We manage our claims handling on a companywide basis through approximately 475 claims offices located throughout the United States. In addition, we have in operation 53 centers, in 41 metropolitan areas across the country, that provide concierge-level claims service. These facilities are designed to provide end-to-end resolution for auto physical damage losses. Customers can choose to bring their vehicles to one of these sites, where they can pick up a rental vehicle. Our representatives will then write the estimate, select a qualified repair shop and inspect the vehicle once the repairs are complete. This service reforms the vehicle repair process, increases consumer satisfaction, increases our productivity and improves the cycle time and quality of repairs. Concierge-level of claims service is our primary approach to damage assessment and facilitation of vehicle repairs in urban markets. We will continue to expand this service into 2007 and 2008, although at a slower pace, with approximately 18 new sites expected to be opened.

4

Competitive Factors

The automobile insurance and other property-casualty markets in which we operate are highly competitive. Property-casualty insurers generally compete on the basis of price, consumer recognition, coverages offered, claims handling, financial stability, customer service and geographic coverage. Vigorous competition is provided by large, well-capitalized national companies, some of which have broad distribution networks of employed or captive agents, and by smaller regional insurers. Over the last few years, third party comparative rating services have emerged, adding transparency to industry pricing, and many of our competitors have significantly increased their advertising and marketing efforts and/or expanded their online service offerings, further intensifying the competitive nature of the automobile and other property-casualty insurance markets.

We rely heavily on technology and extensive data gathering and analysis to segment markets and price accurately according to risk potential. We have remained competitive by refining our risk measurement and price segmentation skills, closely managing expenses and achieving operating efficiencies. Superior customer service, fair and accurate claims adjusting and strong brand recognition are also important factors in our competitive strategy.

State Insurance Licenses

Progressive’s insurance subsidiaries operate under licenses issued by various state insurance authorities. These licenses may be of perpetual duration or renewable periodically, provided the holder continues to meet applicable regulatory requirements. Our licenses govern the kinds of insurance coverages that may be written by our insurance subsidiaries in the issuing state. Such licenses are normally issued only after the filing of an appropriate application and the satisfaction of prescribed criteria. All licenses that are material to the subsidiaries’ businesses are in good standing.

Insurance Regulation

Progressive’s insurance subsidiaries are generally subject to regulation and supervision by insurance departments of the jurisdictions in which they are domiciled or licensed to transact business. At least one of our insurance subsidiaries is licensed and subject to regulation in each of the 50 states and the District of Columbia. The nature and extent of such regulation and supervision varies from jurisdiction to jurisdiction. Generally, an insurance company is subject to a higher degree of regulation and supervision in its state of domicile. Progressive’s insurance subsidiaries and affiliate are domiciled in the states of Florida, Indiana, Louisiana, Michigan, New Jersey, New York, Ohio, Texas and Wisconsin. State insurance departments have broad administrative power relating to licensing insurers and agents, regulating premium changes and policy forms, establishing reserve requirements, prescribing statutory accounting methods and the form and content of statutory financial reports, and regulating the type and amount of investments permitted. Rate regulation varies from “use and file,” to “file and use,” to prior approval, to mandated rates.

Insurance departments are charged with the responsibility of ensuring that insurance companies maintain adequate capital and surplus and comply with a variety of operational standards. Insurance companies are generally required to file detailed annual and other reports with the insurance department of each jurisdiction in which they conduct business. Insurance departments are authorized to make periodic and other examinations of regulated insurers’ financial condition and operations to monitor financial stability of the insurers and to ensure adherence to statutory accounting principles and compliance with state insurance laws and regulations.

Insurance holding company laws enacted in many jurisdictions grant to insurance authorities the power to regulate acquisitions of insurers and certain other transactions and to require periodic disclosure of certain information. These laws impose prior approval requirements for certain transactions between regulated insurers and their affiliates and generally regulate dividend and other distributions, including loans and cash advances, between regulated insurers and their affiliates. See the “Dividends” discussion in Item 5(c) for further information on these dividend limitations.

Under state insolvency and guaranty laws, regulated insurers can be assessed or required to contribute to state guaranty funds to cover policyholder losses resulting from the insolvency of other insurers. Insurers are also required by many states, as a condition of doing business in the state, to provide coverage to certain risks which are not insurable in the voluntary market. These “assigned risk” plans generally specify the types of insurance and

5

the level of coverage which must be offered to such involuntary risks, as well as the allowable premium. Many states also have involuntary market plans which hire a limited number of servicing carriers to provide insurance to involuntary risks. These plans, through assessments, pass underwriting and administrative expenses on to insurers that write voluntary coverages in those states.

Insurance companies are generally required by insurance regulators to maintain sufficient surplus to support their writings. Progressive is in the process of slowly increasing operating leverage through a higher ratio of net premiums written to surplus in our insurance subsidiaries where permitted. Although the ratio of writings to surplus that the regulators will allow is a function of a number of factors (including applicable law, the type of business being written, the adequacy of the insurer’s reserves and the quality of the insurer’s assets), the annual net premiums that an insurer may write have historically been perceived to be limited to a specified multiple of the insurer’s total policyholders’ surplus, generally 3 to 1. At year-end 2006, the combined premiums to surplus ratio for all Progressive insurance companies was 2.8 to 1. Thus, the amount of an insurer’s surplus, in certain cases, may limit its ability to grow its business. The National Association of Insurance Commissioners (NAIC) also has developed a risk-based capital (RBC) program to enable regulators to take appropriate and timely regulatory actions relating to insurers that show signs of weak or deteriorating financial condition. RBC is a series of dynamic surplus-related formulas which contain a variety of factors that are applied to financial balances based on the degree of certain risks, such as asset, credit and underwriting risks. Progressive’s RBC ratios are well in excess of minimum requirements.

Many states have laws and regulations that limit an insurer’s ability to exit a market. For example, certain states limit an automobile insurer’s ability to cancel or non-renew policies. Certain states also prohibit an insurer from withdrawing one or more lines of business from the state, except pursuant to a plan that is approved by the state insurance department. The state insurance department may disapprove a plan that may lead to market disruption. Laws and regulations that limit the cancellation or non-renewal of policies, or that subject program withdrawals to prior approval requirements, may restrict an insurer’s ability to exit unprofitable markets or businesses.

Regulation of insurance constantly changes as real or perceived issues and developments arise. Some changes may be due to economic developments, such as changes in investment laws made to recognize new investment vehicles; other changes result from such general pressures as consumer resistance to price increases and concerns relating to insurer rating and underwriting practices and solvency. In recent years, legislation, regulatory measures and voter initiatives have been introduced, and in some cases adopted, which deal with use of non-public consumer information, use of financial responsibility and credit information in underwriting, insurance rate development, rate of return limitations, rate determination and the ability of insurers to cancel or non-renew insurance policies, reflecting concerns about consumer privacy, coverage, availability, prices and alleged discriminatory pricing. In addition, from time to time, the United States Congress and certain federal agencies investigate the current condition of the insurance industry to determine whether federal regulation is necessary.

In a number of states, Progressive’s insurance subsidiaries use financial responsibility or credit information (credit) as part of the underwriting or rating process. This practice is expressly authorized by the federal Fair Credit Reporting Act, and our information demonstrates that credit is an effective predictor of insurance risk. The use of credit in underwriting and rating is the subject of significant regulatory and legislative activity. Regulators and legislators have expressed a number of concerns related to the use of credit, including: questions regarding the accuracy of credit reports, perceptions that credit may have a disparate effect on the poor and certain minority groups, the perceived lack of a demonstrated causal relationship between credit and insurance risk, the treatment of persons with limited or no credit, the impact on credit of extraordinary life events (e.g., catastrophic injury or death of a spouse), and the credit attributes applied in the credit scoring models used by insurers. A number of state insurance departments have issued bulletins, directives or regulations to regulate the use of credit by insurers. In addition, a number of states are considering or have passed legislation to regulate insurers’ use of credit. Also, Congress recently mandated that the federal government conduct a disparate impact study of the use of credit. It is possible that Congress or one or more states may enact further legislation affecting the use of credit in underwriting and rating following completion of that study.

In some states, the automobile insurance industry has been under pressure in past years from regulators, legislators or special interest groups to reduce, freeze or set rates to or at levels that are not necessarily related to underlying

6

costs, including initiatives to roll back automobile and other personal lines rates. This kind of activity has affected adversely, and in the future may affect adversely, the profitability and growth of our subsidiaries’ automobile insurance business in those jurisdictions, and may limit the subsidiaries’ ability to increase rates to compensate for increases in costs. Adverse legislative and regulatory activity limiting the subsidiaries’ ability to price automobile insurance adequately, or affecting the subsidiaries’ insurance operations adversely in other ways, may occur in the future. The impact of these regulatory changes on the subsidiaries’ businesses cannot be predicted.

Statutory Accounting Principles

Our results are reported in accordance with GAAP, which differ in certain respects from amounts reported under statutory accounting principles (SAP) prescribed by insurance regulatory authorities. Certain significant differences are described below:

Category	GAAP Accounting	SAP Accounting
Acquisition Expenses	Commissions, premium taxes and other variable costs incurred in connection with writing new and renewal business are capitalized and amortized pro rata over the policy term as premiums are earned.	Commissions, premium taxes and all other acquisition expenses are expensed as incurred.
Non-admitted Assets	Premium receivables are reported net of an allowance for doubtful accounts. Furniture, equipment, application software, leasehold improvements and prepaid expenses are capitalized and amortized over their useful lives or periods benefited. Deferred tax assets are recorded based on estimated future tax effects attributable to temporary differences. A valuation allowance is recorded for any tax benefits that are not expected to be realized.	Premium receivables over 90 days past due are “non-admitted,” which means they are written off against surplus. For premium receivables less than 90 days past due, we also estimate a bad debt reserve. Furniture, equipment, application software, leasehold improvements and prepaid expenses are non-admitted against surplus. Deferred tax assets that do not meet certain statutory requirements for recognition are non-admitted against surplus.
Reinsurance	Ceded reinsurance balances are shown as an asset on the balance sheet as “prepaid reinsurance premiums” and “reinsurance recoverables.”	Ceded reinsurance balances are netted with liabilities. Ceded unearned premiums are netted against the unearned premium liability. Ceded unpaid loss and loss adjustment expense (LAE) amounts are netted against loss and LAE reserves. Only ceded paid loss and LAE are shown as a reinsurance recoverable asset.
Investment Valuation	Fixed maturity securities, which are classified as available-for-sale, are reported at current fair values. Equity securities are reported at quoted fair values.	Fixed maturity securities are reported at amortized cost or the lower of amortized cost or fair value, depending on the type of security. Equity securities are shown at NAIC fair values.
Federal Income Taxes	Federal tax expense and tax liability or recoverable balances include current and deferred income taxes.	For income statement reporting, federal tax expense only includes the current tax provision. Deferred taxes are posted to surplus. SAP deferred tax assets are subject to certain limitations.

Investments

We employ a conservative approach to investment and capital management intended to ensure that we have sufficient capital to support all of the insurance premium that we can profitably write. Our portfolio is invested primarily in short-term and intermediate-term, investment-grade fixed-income securities. Our investment portfolio had a fair value of $14.7 billion at December 31, 2006, compared to $14.3 billion at December 31, 2005. Investment income is affected by the variability of cash flows to or from the portfolio, shifts in the type and quality of investments in the portfolio, changes in yield and other factors. Investment income, including net realized gains (losses) on securities, before expenses and taxes, was $638.1 million in 2006, compared to $498.8 million in 2005 and $563.7 million in 2004. For more detailed discussion, see Management’s Discussion and Analysis of Financial

7

Condition and Results of Operations, beginning on page App.-A-28 of the Annual Report, which is included as Exhibit 13 to this Form 10-K.

Employees

The number of employees, excluding temporary employees, at December 31, 2006, was 27,778, all of which were employed by subsidiaries of The Progressive Corporation.

Liability for Property-Casualty Losses and Loss Adjustment Expenses

The consolidated financial statements include the estimated liability for unpaid losses and loss adjustment expenses (LAE) of Progressive’s insurance subsidiaries. Our objective is to ensure that total reserves (i.e., case reserves and incurred but not recorded reserves, or “IBNR”) are adequate to cover all loss costs, while sustaining minimal variation from the time reserves are initially established until losses are fully developed. The liabilities for losses and LAE are determined using actuarial and statistical procedures and represent undiscounted estimates of the ultimate net cost of all unpaid losses and LAE incurred through December 31 of each year. These estimates are subject to the effect of future trends on claims settlement, among other factors. These estimates are continually reviewed and adjusted as experience develops and new information becomes known. Such adjustments, if any, are reflected in the current results of operations. A detailed discussion of our loss reserving practices can be found in our “Report on Loss Reserving Practices,” which was filed with the Securities and Exchange Commission (SEC) on Form 8-K on June 28, 2006, as well as in the “Critical Accounting Policies” section of our Management’s Discussion and Analysis of Financial Condition and Results of Operations, beginning on page App.-A-44 of the Annual Report, which is included as Exhibit 13 to this Form 10-K. The accompanying tables present information concerning our property-casualty losses and LAE.

The following table provides a reconciliation of beginning and ending estimated liability balances for 2006, 2005 and 2004:

RECONCILIATION OF NET RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
(millions)

	2006			2005			2004
Balance at January 1	$	5,660.3		$	5,285.6		$	4,576.3
Less reinsurance recoverables on unpaid losses		347.2			337.1			229.9
Net balance at January 1		5,313.1			4,948.5			4,346.4
Incurred related to:
Current year		9,641.8			9,720.7			8,664.1
Prior years		(246.9	)		(355.9	)		(109.1	)
Total incurred		9,394.9			9,364.8			8,555.0
Paid related to:
Current year		6,682.3			6,644.7			5,719.2
Prior years		2,662.1			2,355.5			2,233.7
Total paid		9,344.4			9,000.2			7,952.9
Net balance at December 31		5,363.6			5,313.1			4,948.5
Plus reinsurance recoverable on unpaid losses		361.4			347.2			337.1
Balance at December 31	$	5,725.0		$	5,660.3		$	5,285.6

During 2006, 2005 and 2004, we experienced $246.9 million, $355.9 million and $109.1 million, respectively, of favorable loss reserve development. The favorable development was driven by actuarial adjustments, resulting from regularly scheduled actuarial reviews, as well as favorable “all other development” (e.g., claims settling for more or less than reserved, emergence of unrecorded claims at rates different than reserved and changes in reserve estimates by claims representatives). The favorable “all other development” also reflected the continued recognition of lower severity for prior accident years than had been previously estimated. We conduct extensive reviews each month on portions of our business to help ensure that we are meeting our objective of having reserves that are adequate, with minimal variation.

In establishing loss reserves, we take into account projected changes in average severities of claims, which are caused by the anticipated effect of inflation and a number of factors that vary with the individual type of policy written. Average severities are projected based on historical trends adjusted for anticipated changes in

8

underwriting standards, inflation, policy provisions and general economic trends. These anticipated trends are reconsidered periodically based on actual development and are modified if necessary.

We have not entered into any loss reserve transfers or similar transactions having a material effect on earnings or reserves.

9

ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSES DEVELOPMENT
(millions)

YEAR ENDED	1996		1997		1998		1999			2000		2001		2002		2003		2004		2005		2006
LIABILITY FOR UNPAID LOSSES AND LAE — GROSS	$	1,800.6	$	2,146.6	$	2,188.6	$	2,416.2		$	2,986.4	$	3,238.0	$	3,813.0	$	4,576.3	$	5,285.6	$	5,660.3	$	5,725.0
LESS: REINSURANCE RECOVERABLE ON UNPAID LOSSES		267.7		279.1		242.8		216.0			201.1		168.3		180.9		229.9		337.1		347.2		361.4
LIABILITY FOR UNPAID LOSSES AND LAE — NET1		1,532.9		1,867.5		1,945.8		2,200.2			2,785.3		3,069.7		3,632.1		4,346.4		4,948.5		5,313.1		5,363.6
PAID (CUMULATIVE) AS OF:
One year later		743.6		922.0		1,082.8		1,246.5			1,409.3		1,601.7		1,860.7		2,233.8		2,355.5		2,662.1
Two years later		1,034.5		1,289.6		1,487.9		1,738.5			2,047.2		2,290.7		2,688.9		3,148.1		3,430.6		—
Three years later		1,266.1		1,474.9		1,680.6		2,001.4			2,355.0		2,655.8		3,084.6		3,642.5		—		—
Four years later		1,351.1		1,554.1		1,785.7		2,126.4			2,514.6		2,821.0		3,291.6		—		—		—
Five years later		1,384.0		1,596.7		1,836.4		2,191.4			2,586.3		2,910.2		—		—		—		—
Six years later		1,399.9		1,618.2		1,865.3		2,225.5			2,631.2		—		—		—		—		—
Seven years later		1,408.9		1,630.4		1,883.4		2,248.1			—		—		—		—		—		—
Eight years later		1,414.1		1,642.9		1,895.2		—			—		—		—		—		—		—
Nine years later		1,417.9		1,650.5		—		—			—		—		—		—		—		—
Ten years later		1,422.3		—		—		—			—		—		—		—		—		—
LIABILITY RE-ESTIMATED AS OF:
One year later		1,429.6		1,683.3		1,916.0		2,276.0			2,686.3		3,073.2		3,576.0		4,237.3		4,592.6		5,066.2
Two years later		1,364.5		1,668.5		1,910.6		2,285.4			2,708.3		3,024.2		3,520.7		4,103.3		4,485.2		—
Three years later		1,432.3		1,673.1		1,917.3		2,277.7			2,671.2		2,988.7		3,459.2		4,048.0		—		—
Four years later		1,451.0		1,669.2		1,908.2		2,272.3			2,666.9		2,982.7		3,457.8		—		—		—
Five years later		1,445.1		1,664.7		1,919.0		2,277.5			2,678.5		2,993.7		—		—		—		—
Six years later		1,442.0		1,674.5		1,917.6		2,284.9			2,683.7		—		—		—		—		—
Seven years later		1,445.6		1,668.4		1,921.9		2,287.4			—		—		—		—		—		—
Eight years later		1,442.5		1,673.9		1,923.4		—			—		—		—		—		—		—
Nine years later		1,443.2		1,675.5		—		—			—		—		—		—		—		—
Ten years later		1,443.6		—		—		—			—		—		—		—		—		—
CUMULATIVE DEVELOPMENT:
FAVORABLE/(UNFAVORABLE)	$	89.3	$	192.0	$	22.4	$	(87.2	)	$	101.6	$	76.0	$	174.3	$	298.4	$	463.3	$	246.9
PERCENTAGE2		5.8		10.3		1.2		(4.0	)		3.6		2.5		4.8		6.9		9.4		4.6
RE-ESTIMATED LIABILITY FOR UNPAID LOSSES AND LAE — GROSS	$	1,716.2	$	1,938.2	$	2,157.8	$	2,502.8		$	2,881.1	$	3,179.0	$	3,695.7	$	4,352.3	$	4,849.1	$	5,419.4
LESS: RE-ESTIMATED REINSURANCE RECOVERABLE ON UNPAID LOSSES		272.6		262.7		234.4		215.4			197.4		185.3		237.9		304.3		363.9		353.2
RE-ESTIMATED LIABILITY FOR UNPAID LOSSES AND LAE - NET1	$	1,443.6	$	1,675.5	$	1,923.4	$	2,287.4		$	2,683.7	$	2,993.7	$	3,457.8	$	4,048.0	$	4,485.2	$	5,066.2
GROSS CUMULATIVE DEVELOPMENT:
FAVORABLE/(UNFAVORABLE)	$	84.4	$	208.4	$	30.8	$	(86.6	)	$	105.3	$	59.0	$	117.3	$	224.0	$	436.5	$	240.9

1	Represents loss and LAE reserves net of reinsurance recoverables on unpaid losses at the balance sheet date.
2	Cumulative development ÷ liability for unpaid losses and LAE — Net.

The above table presents the development of balance sheet liabilities for losses and LAE from 1996 through 2005. The top line of the table shows the estimated liability for unpaid losses and LAE recorded at the balance sheet date for each of the indicated years for the property-casualty insurance subsidiaries only. This liability represents the estimated amount of losses and LAE for claims that were unpaid at the balance sheet date, including IBNR. The table also presents the re-estimated liability for unpaid losses and LAE on a gross basis, with separate disclosure of the re-estimated reinsurance recoverables on unpaid losses.

The upper section of the table (labeled “Paid (Cumulative) as of:”) shows the cumulative amount paid with respect to the previously recorded liability as of the end of each succeeding year. The lower portion of the table (labeled “Liability Re-estimated as of:”) shows the re-estimated amount of the previously recorded liability based on

10

experience as of the end of each succeeding year. The estimate is increased or decreased as more information about the claims becomes known for individual years. For example, as of December 31, 2006, our insurance subsidiaries had paid $1,650.5 million of the currently estimated $1,675.5 million of losses and LAE that had been incurred through the end of 1997; thus, an estimated $25.0 million of losses incurred through 1997 remain unpaid as of the current financial statement date.

The cumulative development represents the aggregate change in the ultimate loss estimate over all prior years. For example, the 1996 liability has developed favorably by $89.3 million over ten years. That amount has been reflected in income over the ten years and did not have a significant effect on the income of any one year. The effects on income during the past three years due to changes in estimates of the liabilities for losses and LAE are shown in the reconciliation table on page 8 as the “prior years” contribution to incurred losses and LAE.

In evaluating this information, note that each cumulative development amount includes the effects of all changes in amounts during the current year for prior periods. For example, the amount of the development related to losses settled in 1999, but incurred in 1996, will be included in the cumulative development amount for years 1996, 1997 and 1998. Conditions and trends that have affected development of the liability in the past may not necessarily occur in the future. Accordingly, it generally is not appropriate to extrapolate future development based on this table.

We experienced continually favorable reserve development from 1996 through 1998 primarily due to decreasing bodily injury severity. The reserves established as of the end of each year assumed the current accident year’s severity would increase over the prior accident year’s estimate. From 1996 continuously through the third quarter 1998, our bodily injury severity decreased each quarter when compared to the same quarter of the prior year. This period of decreasing severity for us was not only longer than that experienced by the industry, but also longer than at any time in our recent history. As the experience continued to be evaluated at later dates, the realization of the decreased severity resulted in favorable reserve development. Late in 1998, we started experiencing an increase in bodily injury severity. As a result, the reserve development for 1998 through 2001 has been much closer to our original estimate. Thereafter, we recognized lower severity than what we expected when reserves were originally set, resulting again in favorable development from 2002 through 2005.

The Analysis of Loss and Loss Adjustment Expenses Development table on page 10 is constructed from Schedule P, Part-1, from the Consolidated Annual Statements of Progressive’s insurance subsidiaries, as filed with the state insurance departments.

(d) Financial Information About Geographic Areas.

Progressive operates throughout the United States.

(e) Available Information.

Our Web site is located at progressive.com. As soon as reasonably practicable, we make all documents that we file with, or furnish to, the SEC, including our reports on Form 10-K, Form 10-Q and Form 8-K, and any amendments to these reports, available free of charge via our Web site at progressive.com/investors. These reports are also available on the SEC’s Web site: sec.gov.

ITEM 1A. RISK FACTORS

Progressive’s business involves various risks and uncertainties, certain of which are discussed in this section. Management divides these risks into three broad categories in assessing how they may affect our ability to achieve our business objectives:

• Operating Risks are those stemming from external or internal events or circumstances that directly or indirectly may affect our insurance operations.

• Investing Risks are uncertainties relating to the performance and preservation of our investment portfolios. Unlike most other risks, the actual development of an investment risk factor (such as whether

11

	interest rates go down or up) may result in either an increase or decrease in the value of investments we hold.
•	Financing Risks generally relate to our ability to obtain capital, when necessary, to pay or otherwise perform our obligations, including obligations under any debt instruments issued, and to earn the cost of equity capital.

In addition, a fourth category of Other Risks is included below to highlight additional matters that our shareholders should consider to better understand management’s long-term approach to the business.

Although we have organized risks generally according to these categories in the discussion below, it should be noted that many of the risks have ramifications in more than one category. For example, although presented as an Operating Risk below, state regulation of insurance companies may also affect our investing and financing activities. Similarly, while setting insurance rates, setting loss reserves and adjusting claims are properly discussed as Operating Risks, errors in these disciplines may have an impact on the investing and financing areas as well. The categories, therefore, should be viewed as a starting point for understanding the significant risks facing us and not as a limitation on the potential impact of the matters being discussed.

This information should be considered carefully together with the other information contained in this report and in the other reports and materials filed by us with the SEC, as well as news releases and other information publicly disseminated by us from time to time.

The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. If any such risks or uncertainties, or any of the following risks or uncertainties, develop into actual events, this could have a materially adverse effect on our business, financial condition or results of operations. In that case, the market price of our Common Shares could decline materially.

I. Operating Risks

We compete in the automobile insurance and other property-casualty markets, which are highly competitive.

We face vigorous competition from large, well-capitalized national companies and smaller regional insurers. Other large national and international insurance or financial services companies also may enter these markets in the future. Many of these companies may have greater financial, marketing and management resources than we have. In addition, competitors may offer consumers combinations of auto policies and other insurance products or financial services that we do not offer. We could be adversely affected by the failure to generate new business, or to retain a sufficient percentage of our current customers, as a result of competitors offering similar insurance products at lower prices or offering bundled products or services and by other competitor initiatives.

From time to time, we undertake strategic initiatives to maintain and improve our competitive position in auto insurance markets. Based on a culture that encourages innovation, these strategies at times involve significant departures from our and/or our competitors’ then-current or historical modes of doing business. As such, our innovations may entail a degree of risk and may not ultimately achieve anticipated business goals. In addition, these initiatives may be subject to challenge by regulators or private litigants and may disrupt our relationships with certain of our customers and producers (i.e., agents and brokers). If we are unable successfully to develop, plan and implement our strategic initiatives in these competitive, regulatory and legal environments, or if we are unable to identify effective strategies in the first instance to maintain or enhance our competitive position, our business could be materially adversely affected.

Similarly, we undertake distinctive advertising campaigns and other efforts to improve brand recognition, generate new business and increase the retention of our current customers. If these campaigns or efforts are unsuccessful or are less effective than those of competitors, our business could be materially adversely affected. We believe that improving the effectiveness of our advertising campaigns relative to those of our competitors is particularly important given the recent increases in advertising and marketing efforts within the automobile insurance market.

The highly competitive nature of the markets in which we compete could also result in the failure of one or more major competitors. In the event of a failure of a major insurer, we could be adversely affected, as our company

12

and other insurance companies may be required under state-mandated plans to absorb the losses of the failed insurer, and we could be faced with an unexpected surge in new business from the failed insurer’s former policyholders.

Our ability to attract, develop and retain talented employees, managers and executives, and to maintain appropriate staffing levels, is critical to our success.

Our success depends on our ability to attract, develop and retain talented employees, including executives and other key managers. Our loss of certain key officers and employees or the failure to attract and develop talented new executives and managers could have a materially adverse effect on our business.

In addition, we must forecast volume and other factors in changing business environments (for multiple business units and in many geographic markets) with reasonable accuracy and adjust our hiring programs and/or employment levels accordingly. Our failure to recognize the need for such adjustments, or our failure or inability to react appropriately on a timely basis, could lead either to over-staffing (which would adversely affect our cost structure) or under-staffing (impairing our ability to service our ongoing and new business) in one or more business units or locations. In either such event, our financial results could be materially adversely affected.

We further believe that our success depends, in large part, on our ability to maintain and improve the staffing models and employee culture that we have developed over the years. Our ability to do so may be impaired as a result of litigation against us, legislation or regulations at the state or federal level or other factors in the employment marketplace. In such events, the productivity of certain of our workers could be adversely affected, which could lead to an erosion of our operating performance and margins.

The Progressive Corporation and its insurance subsidiaries are subject to a variety of complex federal and state laws and regulations.

Progressive’s insurance businesses operate in a highly regulated environment. Our insurance subsidiaries are subject to regulation and supervision by state insurance departments in all 50 states and the District of Columbia, each of which has a unique and complex set of laws and regulations. In addition, certain federal laws impose additional requirements on businesses, including insurers. Our insurance subsidiaries’ ability to comply with these laws and regulations at reasonable costs, and to obtain necessary regulatory action in a timely manner, is and will continue to be critical to our success.

Certain states impose restrictions on or require prior regulatory approval of various actions by regulated insurers, which may adversely affect our insurance subsidiaries’ ability to operate, innovate and obtain necessary rate adjustments in a timely manner. Our compliance efforts are further complicated by changes in laws or regulations applicable to insurance companies (such as, in recent years, legislative and regulatory initiatives concerning the use of nonpublic consumer information and related privacy issues, the use of credit scoring in underwriting and efforts to freeze, set or roll back insurance premium rates or limit the rate of return that an insurance company may earn). Insurance laws and regulations may limit the insurance subsidiaries’ ability to underwrite and price risks accurately, prevent the subsidiaries from obtaining timely rate changes to recognize increased or decreased costs, restrict the subsidiaries’ ability to discontinue unprofitable businesses or exit unprofitable markets or prevent insurers from terminating policies under certain circumstances. In addition, compliance with insurance-related laws and regulations often results in increased administrative costs to our insurance subsidiaries. These costs, in turn, may adversely affect our profitability or our ability or desire to grow our business in the applicable jurisdictions.

The failure to comply with these laws and regulations also could result in actions by regulators or other law enforcement officials, potentially leading to fines and penalties, adverse publicity and damage to our reputation in the marketplace, and in extreme cases, revocation of a subsidiary’s authority to do business in one or more jurisdictions. In addition, The Progressive Corporation and its subsidiaries can face individual and class action lawsuits by its insureds and other parties for alleged violations of certain of these laws or regulations.

During 2004 and 2005, we received document and information requests from several state attorneys general and insurance regulators regarding investigations into the relationships between insurers and brokers and agents, allegations of bid-rigging by certain brokers and other related matters. We have not been notified by any governmental or regulatory authority that we are the target of any such investigation. For a discussion of these

13

requests, see the “Financial Condition — Commitments and Contingencies” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Annual Report, which is attached as Exhibit 13 to this Form 10-K.

New legislation or regulations may be adopted in the future which could adversely affect our operations or ability to write business profitably in one or more states. In addition, from time to time, the United States Congress and certain federal agencies investigate the current condition of the insurance industry to determine whether federal regulation is necessary. We are unable to predict whether any such laws will be enacted and how and to what extent such laws and regulations would affect our businesses.

State insurance regulation may create risks and uncertainties for Progressive’s insurance subsidiaries in other ways as well. For further information on these risks and uncertainties, see the “Insurance Regulation” discussion beginning on page 5 of this report.

Lawsuits challenging our business practices, and those of our competitors and other companies are pending, and more may be filed in the future.

The Progressive Corporation and/or its subsidiaries are named as defendants in putative class action and other lawsuits challenging various aspects of the subsidiaries’ business operations, and such litigation may arise in the future concerning similar or other business practices. These lawsuits include cases alleging damages as a result of our subsidiaries’ use of after-market parts; total loss evaluation methodology; use of credit in underwriting and related requirements under the federal Fair Credit Reporting Act; methods used for evaluating and paying certain bodily injury, personal injury protection and medical payment claims; and policy implementation and renewal procedures, among other matters. From time to time, we also may be involved in litigation or other disputes alleging that our subsidiaries’ business practices or systems violate the patent, trademark or other intellectual property rights of third parties. Additional litigation may be filed against us concerning how we settle claims, our employment-related practices, medical malpractice and other general liability causes of action arising from the operation of our business. In addition, lawsuits have been filed, and other lawsuits may be filed in the future, against our competitors and other businesses, and although we are not a party to such litigation, the results of those cases may create additional risks for, and/or impose additional costs and/or limitations on, the subsidiaries’ business operations.

Lawsuits against us often seek significant monetary damages. Moreover, as courts resolve individual or class action litigation in insurance or related fields, a new layer of court-imposed regulation could emerge, resulting in material increases in our costs of doing business. Such litigation is inherently unpredictable. Except to the extent we have established reserves with respect to particular lawsuits that are currently pending against us, we are unable to predict the effect, if any, that these pending or future lawsuits may have on our business, operations, profitability or financial condition. For further information on pending litigation, see Note 11, Litigation, beginning on page App.-A.-23 of the Annual Report, which is included as Exhibit 13 to this Form 10-K.

Our success depends on our ability to underwrite risks accurately and to charge adequate rates to policyholders.

Our financial condition, cash flows and results of operations depend on our ability to underwrite and set rates accurately for a full spectrum of risks. The role of the pricing function is to ensure that rates are adequate to generate sufficient premium to pay losses, loss adjustment expenses and underwriting expenses and to earn a profit.

Our ability to price accurately is subject to a number of risks and uncertainties, including, without limitation:

• the availability of sufficient reliable data,

• uncertainties inherent in estimates and assumptions, generally,

• our ability to conduct a complete and accurate analysis of available data,

• our ability to timely recognize changes in trend and to project both the severity and frequency of losses with reasonable accuracy,

• our ability to project changes in certain operating expenses with reasonable certainty,

• the development, selection and application of appropriate rating formulae or other pricing methodologies,

14

• our ability to innovate with new pricing strategies, and the success of those innovations,

• our ability to predict policyholder retention accurately,

• unanticipated court decisions, legislation or regulatory action,

• ongoing changes in our claim settlement practices,

• changing driving patterns,

• unexpected changes in the medical sector of the economy, including medical costs, and

• unanticipated changes in auto repair costs, auto parts prices and used car prices.

The realization of such risks may result in our pricing being based on stale, inadequate or inaccurate data or inappropriate analyses, assumptions or methodologies, and may cause us to estimate incorrectly future changes in the frequency or severity of claims. As a result, we could underprice risks, which would negatively affect our margins, or we could overprice risks, which could reduce our volume and competitiveness. In either event, our operating results, financial condition and cash flows could be materially adversely affected. In addition, underpricing insurance policies over time could erode the capital position of one or more of our insurance subsidiaries, constraining our ability to write new business.

Our long-term growth prospects could be impacted by reduced accident frequency trends.

Auto accident frequency has steadily declined since 2000, contributing to lower insurance premiums for many consumers. Although not conclusive, several contributors to reduced frequency include improved vehicle safety, road design and driver education. We are not able to predict whether frequency will continue to decline, will stabilize or will return to increasing trends more consistent with the periods prior to 2000. If the recent trend continues, however, declining auto accident frequency, if not offset by an increase in severity, could lead to a long-term reduction in the amount of premiums written in the auto insurance industry, thus directly affecting our ability to grow our auto insurance business revenues.

Our success depends on our ability to establish accurate loss reserves and to adjust claims accurately.

Our financial statements include loss reserves, which represent our best estimate of the amounts that the subsidiaries will ultimately pay on claims that have been incurred, and the related costs of adjusting those claims, as of the date of the financial statements. There is inherent uncertainty in the process of establishing property and casualty loss reserves, which can arise from a number of factors, including:

• the availability of sufficient reliable data,

• the difficulty in predicting the rate and direction of changes in frequency and severity trends in multiple markets,

• unexpected changes in medical and auto repair costs,

• unanticipated changes in governing statutes and regulations,

• new or changing interpretations of insurance policy provisions by courts,

• inconsistent decisions in lawsuits regarding coverage and changing theories of liability,

• ongoing changes in our claim settlement practices,

• the accuracy of our estimates of the frequency or severity of claims that have been incurred but not reported as of the date of the financial statements,

• the accuracy and adequacy of actuarial techniques and databases used in estimating loss reserves, and

• the accuracy of estimates of total loss and loss adjustment expenses as determined by our employees for different categories of claims.

As a result of these and other risks and uncertainties, the ultimate paid losses and loss adjustment expenses may deviate, perhaps substantially, from point-in-time estimates of such losses and expenses, as reflected in the loss reserves included in our financial statements. Consequently, ultimate losses paid could materially exceed loss reserves and have a materially adverse effect on our results of operations, liquidity or financial position. Further information on our loss reserves can be found in the “Liability for Property-Casualty Losses and Loss Adjustment Expenses” discussion beginning on page 8 of this report, as well as our “Report on Loss Reserving Practices,” which was filed with the SEC on Form 8-K on June 28, 2006.

Likewise, we must accurately evaluate and pay claims that are made under our policies. Many factors can affect our ability to pay claims accurately, including the training and experience of our claims representatives, the claims organization’s culture and the effectiveness of our management, our ability to develop or select and implement

15

appropriate procedures and systems to support our claims functions and the success of our concierge-level claims services program. Our failure to pay claims accurately could result in unanticipated costs to us, lead to material litigation, undermine customer goodwill and our reputation in the marketplace and impair our brand image and, as a result, materially adversely affect our financial results, prospects and liquidity.

Our financial performance may be materially adversely affected by severe weather conditions or other catastrophic losses.

Catastrophes can be caused by natural events, such as hurricanes, tornadoes, windstorms, earthquakes, hailstorms, severe winter weather and fires, or other events, such as explosions, terrorist attacks, riots, hazardous material releases, medical epidemics, utility outages or interruptions of communications facilities. The extent of insured losses from a catastrophe is a function of both our total net insured exposure in the area affected by the event and the nature and severity of the event. In addition, our business could be further impaired if a significant portion of our business or systems were shut down by, or if we were unable to gain access to certain of our facilities as a result of, such an event. Most of our past catastrophe-related claims have resulted from severe storms, as evidenced recently by the active hurricane seasons in 2004 and 2005. The incidence and severity of catastrophes are inherently unpredictable. When they occur with enough severity, our financial performance, cash flows and results of operations could be materially adversely affected.

Our business depends on the uninterrupted operation of our facilities, systems and business functions, including our information technology and other business systems.

Our business is highly dependent upon our employees’ ability to perform, in an efficient and uninterrupted fashion, necessary business functions, such as Internet support and 24-hour call centers, processing new and renewal business, and processing and paying claims. A shut-down of or inability to access one or more of our facilities, a power outage, or a failure of one or more of our information technology, telecommunications or other systems for any reason, including failures that might occur as existing systems are replaced or upgraded, could significantly impair our ability to perform such functions on a timely basis. In addition, because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such service exceeds capacity or a third-party system fails or experiences an interruption. If sustained or repeated, such a business interruption, system failure or service denial could result in a deterioration of our ability to write and process new and renewal business, provide customer service, pay claims in a timely manner or perform other necessary business functions. This could result in a materially adverse effect on our business results, prospects and liquidity.

A security breach of our computer systems could also interrupt or damage our operations or harm our reputation. In addition, we could be subject to liability if confidential customer information is misappropriated from our computer systems. Despite the implementation of security measures, including hiring an independent firm to perform intrusion vulnerability testing of our computer systems, these systems may be vulnerable to physical break-ins, computer viruses, programming errors, attacks by third parties or similar disruptive problems. Any compromise of security could deter people from entering into transactions that involve transmitting confidential information to our systems, which could have a material, adverse effect on our business.

II. Investing Risks

The performance of our fixed-income and equity investment portfolios is subject to investment risks.

Our fixed-income portfolio is subject to a number of risks, including:

• Interest rate risk — the risk of adverse changes in the value of fixed-income securities as a result of increases in the underlying market rates, which is the most significant risk to the fixed-income portfolio.

• Credit risk — the risk that the value of certain investments may become impaired due to the deterioration in financial condition of one or more issuers of those instruments and, ultimately, the risk of permanent loss in the event of default by an issuer.

• Concentration risk — the risk that the portfolio may be too heavily concentrated in the securities of one or more issuers, sectors or industries, which could result in a significant decrease in the value of the portfolio in the event of a deterioration of the financial condition of those issuers or the market value of their securities.

16

• Prepayment or extension risk (applicable to certain securities in the portfolio, such as residential mortgage-backed securities) — the risk that, as interest rates change, the principal of such securities may be repaid earlier than anticipated, adversely affecting the value of or income from such securities and the portfolio.

The common equity portfolio, which is managed to track the Russell 1000 index, is subject to general movements in the values of equity markets and to the changes in the prices of the securities we hold. Equity markets and individual securities may be subject to periods of high volatility. A decline in the aggregate value of the equities that make up the index would be expected to result in a commensurate decline in the value of our common equity portfolio.

In addition, both the fixed-income and the common equity portfolios are subject to risks inherent in the nation’s and world’s capital markets. The functioning of those markets, the values of the investments we hold and our ability to liquidate investments on favorable terms on short notice may be adversely affected if those markets are disrupted or otherwise affected by local, national or international events, such as power outages, system failures, wars or terrorist attacks, recessions or depressions, a significant change in inflation expectations, a significant devaluation of governmental or private sector credit, currencies or financial markets, or other factors or events.

If the fixed-income or equity portfolios, or both, were to be impaired by market, sector or issuer-specific conditions to a substantial degree, our liquidity, financial position and financial results could be materially adversely affected. Under these circumstances, our income from these investments could be materially reduced, and declines in the value of certain securities could further reduce our reported earnings and capital levels. A decrease in value of an insurance company’s investment portfolio could also put the subsidiary at risk of failing to satisfy regulatory minimum capital requirements. If we at that time are unable to supplement the subsidiary’s capital from The Progressive Corporation’s other assets or by issuing debt or equity securities on acceptable terms, our business could be materially adversely affected.

III. Financing Risks

Our insurance subsidiaries may be limited in the amount of dividends that they can pay to the holding company, which in turn may limit the holding company’s ability to pay dividends to shareholders, repay indebtedness or make capital contributions to its other subsidiaries or affiliates.

The Progressive Corporation is a holding company with no business operations of its own. Consequently, if its subsidiaries are unable to pay dividends or make other distributions to The Progressive Corporation, or are able to pay only limited amounts, Progressive may be unable to pay dividends to shareholders, make payments on its indebtedness, meet its other obligations, repurchase its Common Shares, or make capital contributions to or otherwise fund its subsidiaries or affiliates. Each insurance subsidiary’s ability to pay dividends to the holding company may be limited by one or more of the following factors:

• State insurance regulatory authorities require insurance companies to maintain specified minimum levels of statutory capital and surplus.

• State regulations restrict the amounts available for distribution based on either net income or surplus availability of the insurance company.

• Competitive pressures require our insurance subsidiaries to maintain financial strength ratings.

• In certain jurisdictions, prior approval must be obtained from state regulatory authorities for the insurance subsidiaries to pay dividends or make other distributions to affiliated entities, including the holding company.

Further information on state insurance laws and regulations which may limit the ability of our insurance subsidiaries to pay dividends can be found in Item 5(c), “Dividends,” on page 20 of this report.

Our financial condition may be adversely affected if one or more parties with which we enter into significant contracts becomes insolvent or experiences other financial hardship.

Our business is dependent on the performance by third parties of their responsibilities under various contractual relationships, including without limitation, contracts for the acquisitions of goods and services (such as telecommunications and information technology equipment and support, and other services that are integral to our operations) and arrangements for transferring certain of our risks (including reinsurance used by us in connection with certain of our insurance products and our corporate insurance policies). If one or more of these parties were

17

to default on the performance of their obligations under their respective contracts or determine to abandon or terminate support for a system, product or service that is significant to our business, we could suffer significant financial losses and operational problems, which could in turn adversely affect our financial performance, cash flows or results of operations.

Our decision to retain a specific amount of capital that is not adequate to support our actual business needs could adversely affect our financial condition and our ability to grow.

We intend to maintain capital levels as necessary to pay all claims and other business expenses, to provide for the anticipated growth of our insurance businesses, and to provide for additional protection against possible large, unexpected losses. The level of capital that is retained at any time is determined by management based, in part, on current and anticipated business results, our growth prospects, and estimates of the levels of capital needed to protect us against unexpected events. The estimates for unexpected events are internally produced and are the result of extensive analysis and modeling of the types of risks that we are likely to face. If our actual capital level turns out to be lower than is actually needed at a given time, our financial condition could be materially adversely affected, our ability to grow the insurance business could be constrained until additional sources of capital are found, and our ability to gain access to debt or equity markets at favorable rates could be adversely impacted.

Our access to capital markets, our financing arrangements and our business operations are dependent on favorable evaluations and ratings by credit and other rating agencies.

Our credit strength is evaluated and rated by various rating agencies, such as Standard & Poor’s and Moody’s Investors Service. In addition, the financial strength of our insurance subsidiaries is rated by A.M. Best. Progressive and its insurance subsidiaries currently enjoy favorable, stable ratings. Downgrades in our credit ratings could adversely affect our ability to access the capital markets and/or lead to increased borrowing costs in the future (although the interest rates we pay on our current indebtedness would not be affected). Perceptions of our company by investors, producers, other businesses and consumers could also be significantly impaired. Downgrades in the ratings of our insurance subsidiaries could likewise negatively impact our operations, potentially resulting in lower or negative premium growth. In either event, our financial performance could be materially adversely affected.

IV. Other Risks

We do not manage to short-term earnings expectations; our goal is to maximize the long-term value of the enterprise, which at times may adversely affect short-term results.

We believe that shareholder value will be increased in the long run if we meet or exceed the financial goals and policies that we establish each year. We do not manage our business to maximize short-term stock performance or the amount of the dividend paid under our annual variable dividend policy. We also do not provide earnings estimates to the market and do not comment on earnings estimates by analysts. As a result, our reported results for a particular period may vary, perhaps significantly, from investors’ expectations, which could result in significant volatility in our stock price.

In addition, due to our focus on the long-term value of the enterprise, we may undertake business strategies and establish related financial goals for a specific year that are designed to enhance our longer-term position, while understanding that such strategies may not always similarly benefit short-term performance, such as our annual underwriting profit or earnings per share. Such strategies, for example, may involve a reduction in premiums for certain products or customers to support growth or enhance retention of current customers. Consequently, these strategies may adversely affect short-term performance and may result in additional volatility in our stock price.

ITEM 1B. UNRESOLVED STAFF COMMENTS

We currently do not have any unresolved comments from the SEC staff.

18

ITEM 2. PROPERTIES

All of our properties are owned or leased by subsidiaries of The Progressive Corporation. Progressive’s corporate headquarters are located on a 42-acre parcel in Mayfield Village, Ohio. We also have a 72-acre corporate office complex near the headquarters. Buildings on these two sites contain approximately 1.6 million square feet of office space.

We also own: seven other buildings in Cleveland, Ohio suburbs near the corporate office complexes; four buildings in Tampa, Florida; five buildings in Colorado Springs, Colorado; and a building in each of the following cities: Albany, New York; Ft. Lauderdale, Florida; Plymouth Meeting, Pennsylvania; Tempe, Arizona; and Tigard, Oregon. Two of these buildings are partially leased to non-affiliates. In total, these buildings contain approximately 2.0 million square feet of office, warehouse and training facility space. These facilities are occupied by our business units or other supporting operations and are not segregated by industry segment.

The building in Tempe, Arizona is also partially used as a claims service center. In addition, we own 33 buildings and lease another 19 to provide concierge-level claims service at various locations throughout the United States. In total, these additional buildings contain approximately .8 million square feet. We will continue to expand this service into 2007 and 2008, although at a slower pace, with approximately 18 new sites expected to be opened.

We lease approximately 1.3 million square feet of office and warehouse space at various locations throughout the United States for our business units and corporate functions. In addition, we lease approximately 475 claims offices, consisting of approximately 3.5 million square feet, at various locations throughout the United States. These leases are generally short-term to medium-term leases of standard commercial office space.

ITEM 3. LEGAL PROCEEDINGS

None. For a discussion of litigation we currently face, see Note 11, Litigation, beginning on page App.-A-23 of the Annual Report, which is included as Exhibit 13 to this Form 10-K.

On February 22, 2007, a jury in the Federal District Court in Oklahoma City, Oklahoma, rendered a verdict in the amount of $61 million against one of our subsidiaries in an individual employment-related case brought under Title VII of the Civil Rights Act of 1964. All actions under Title VII are subject to a statutory cap on compensatory and punitive damages of $300,000 (excluding damages for front pay, back pay and attorneys fees, which were not covered by the jury’s verdict and will be decided separately by the Court). We, therefore, believe that the jury’s determination is contrary to law and also believe that the verdict was not supported by the facts presented to the Court. We will pursue available remedies to have the verdict overturned or reduced to an amount in conformance with the statutory cap, and we believe that any liability in this case will not materially impact our financial condition, cash flows or results or operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the fourth quarter of 2006.

EXECUTIVE OFFICERS OF THE REGISTRANT

Incorporated by reference from information with respect to executive officers of The Progressive Corporation and its subsidiaries set forth in Item 10 in Part III of this Form 10-K.

19

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

All share and per share amounts in the information provided below have been adjusted for the May 18, 2006, 4-for-1 stock split.

(a) Market Information

Progressive’s Common Shares, $1.00 par value, are traded on the New York Stock Exchange under the symbol PGR. The high and low prices set forth below are as reported on the consolidated transaction reporting system.

								Dividends
Year	Quarter	High		Low		Close		Per Share
2006	1	$	30.09	$	25.25	$	26.07	$	.00750
	2		27.86		25.25		25.71		.00750
	3		25.84		22.18		24.54		.00875
	4		25.54		22.19		24.22		.00875
		$	30.09	$	22.18	$	24.22	$	.03250
2005	1	$	23.12	$	20.35	$	22.94	$	.00750
	2		25.22		21.88		24.70		.00750
	3		26.83		23.43		26.19		.00750
	4		31.23		25.76		29.20		.00750
		$	31.23	$	20.35	$	29.20	$	.03000

The closing price of our Common Shares on January 31, 2007, was $23.19.

(b) Holders

There were 3,927 shareholders of record on January 31, 2007.

(c) Dividends

See the table above for the frequency and amount of cash dividends paid on our Common Shares, $1.00 par value, for the last two years.

During 2006, Progressive’s Board of Directors approved a plan to replace our previous dividend policy in 2007 with an annual variable dividend, payable shortly after the close of each year. This change is described in Management’s Discussion and Analysis of Financial Condition and Results of Operations, beginning on page App.-A-28 of our 2006 Annual Report, which is included as Exhibit 13 to this Form 10-K.

Consolidated statutory policyholders’ surplus was $5.0 billion on December 31, 2006, and $4.7 billion on December 31, 2005. At December 31, 2006, $475.5 million of consolidated statutory policyholders’ surplus represented net admitted assets of Progressive’s insurance subsidiaries and affiliate that are required to meet minimum statutory surplus requirements in such entities’ states of domicile. Generally, the net admitted assets of insurance companies that, subject to other applicable insurance laws and regulations, are available for transfer to the parent company cannot include the net admitted assets required to meet the minimum statutory surplus requirements of the states where the companies are licensed. The companies may be licensed in states other than their states of domicile, however, which may have higher minimum statutory surplus requirements. Based on the dividend laws currently in effect, the insurance subsidiaries may pay aggregate dividends of $1.4 billion in 2007 without prior approval from regulatory authorities, provided the dividend payments are not within 12 months of previous dividends paid by the applicable subsidiary.

20

(d) Securities authorized for issuance under equity compensation plans

The following information is set forth with respect to our equity compensation plans at December 31, 2006.

EQUITY COMPENSATION PLAN INFORMATION

	Number of		Weighted-		Cumulative		Number of Securities
	Securities to be		Average Exercise		Number of		Remaining Available
	Issued upon		Price of		Securities		for Future Issuance
	Exercise of		Outstanding		Awarded as		Under Equity
Plan Category	Outstanding Options		Options		Restricted Stock		Compensation Plans
Equity compensation plans approved by security holders:
Employee Plans:
2003 Incentive Plan		—		—		6,551,486		13,448,514
1995 Incentive Plan1		13,747,221	$	8.75		1,402,320		—
Subtotal Employee Plans		13,747,221		8.75		7,953,806		13,448,514
Director Plans:
2003 Directors Equity Incentive Plan		—		—		229,651		1,170,349
1998 Directors’ Stock Option Plan		652,664		9.05		—		1,627,824
1990 Directors’ Stock Option Plan1		120,000		6.12		—		—
Subtotal Director Plans		772,664		8.59		229,651		2,798,173
Equity compensation plans not approved by security holders:
None		—		—		—		—
Total		14,519,885	$	8.74		8,183,457		16,246,687

¹ These plans have expired and no further awards may be made thereunder.

21

(e) Performance Graph

The following performance graph compares the performance of Progressive’s Common Shares (“PGR”) to the Standard & Poor’s Index (“S&P Index”) and the Value Line Property/Casualty Industry Group (“P/C Group”) for the last five years.

Cumulative Five-Year Total Return*
PGR, S&P Index, P/C Group (Performance Results through 12/31/06)

Cumulative Total Return as of December 31 of each year
(assumes $100 was invested at the close of trading on December 31, 2001)

	2002		2003		2004		2005		2006
PGR	$	99.90	$	168.59	$	171.35	$	236.34	$	196.23
S&P Index		77.90		100.25		111.16		116.62		135.03
P/C Group		103.55		130.98		146.37		162.36		185.85

* Assumes reinvestment of dividends.

Source: Value Line, Inc.

(f) Recent Sales of Unregistered Securities

None.

(g) Share Repurchases

ISSUER PURCHASES OF EQUITY SECURITIES

2006					Total Number of Shares		Maximum Number of Shares
Calendar	Total Number of		Average Price		Purchased as Part of Publicly		That May Yet Be Purchased
Month	Shares Purchased		Paid per Share		Announced Plans or Programs1		Under the Plans or Programs1
October		4,695,236	$	24.44		17,847,494		42,152,506
November		6,307,600		23.14		24,155,094		35,844,906
December		4,507,800		24.00		28,662,894		31,337,106
Total		15,510,636	$	23.79

¹ In April 2006, the Board of Directors authorized the repurchase of up to 60 million Common Shares.

Progressive’s financial policies state that we will repurchase shares to neutralize dilution from equity-based compensation in the year of issuance and to return underleveraged capital to investors. See Note 8, Employee Benefit Plans, “Incentive Compensation Plans,” beginning on page App.-A-17 of the Annual Report, which is included as Exhibit 13 to this Form 10-K, for a summary of our restricted stock grants.

22

ITEM 6. SELECTED FINANCIAL DATA

(millions — except per share amounts)

	For the years ended December 31,
	2006		2005		2004		2003		2002
Total revenues	$	14,786.4	$	14,303.4	$	13,782.1	$	11,892.0	$	9,294.4
Net income		1,647.5		1,393.9		1,648.7		1,255.4		667.3
Per share:1
Net income2		2.10		1.74		1.91		1.42		.75
Dividends		.0325		.0300		.0275		.0250		.0240
Total assets		19,482.1		18,898.6		17,184.3		16,281.5		13,564.4
Debt outstanding		1,185.5		1,284.9		1,284.3		1,489.8		1,489.0

1	All per share amounts were adjusted for the May 18, 2006, 4-for-1 stock split.
2	Presented on a diluted basis.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Incorporated by reference from Management’s Discussion and Analysis of Financial Condition and Results of Operations beginning on page App.-A-28 of the Annual Report, which is included as Exhibit 13 to this Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The quantitative and qualitative disclosures about market risk are incorporated by reference from the “Investments” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations, as described in Item 7 above. Additional information is incorporated by reference from the “Quantitative Market Risk Disclosures” section beginning on page App.-A-50 of the Annual Report, which is included as Exhibit 13 to this Form 10-K.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements of Progressive, along with the related notes, supplementary data and report of the independent registered public accounting firm, are incorporated by reference from the Annual Report, which is included as Exhibit 13 to this Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

23

ITEM 9A. CONTROLS AND PROCEDURES

Progressive, under the direction of the Chief Executive Officer and the Chief Financial Officer, has established disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. The disclosure controls and procedures are also intended to ensure that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

The Chief Executive Officer and the Chief Financial Officer reviewed and evaluated Progressive’s disclosure controls and procedures as of the end of the period covered by this report. Based on that review and evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that Progressive’s disclosure controls and procedures are effectively serving the stated purposes as of the end of the period covered by this report.

Management’s Report on Internal Control over Financial Reporting is incorporated by reference from page App.-A-26 of the Annual Report, which is included as Exhibit 13 to this Form 10-K.

The independent registered public accounting firm’s Attestation Report on Management’s Assessment of Internal Control over Financial Reporting is incorporated by reference from page App.-A-27 of the Annual Report, which is included as Exhibit 13 to this Form 10-K.

There has been no change in Progressive’s internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

24

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information relating to all of the directors, and the individuals who have been nominated for election as directors at the 2007 Annual Meeting of Shareholders of the Registrant, is incorporated herein by reference from the section entitled “Item 1: Election of Directors” in the Proxy Statement.

Information relating to executive officers of Progressive follows. Unless otherwise indicated, the executive officer has held the position(s) indicated for at least the last five years.

Name	Age		Offices Held and Last Five Years’ Business Experience
Glenn M. Renwick		51	President and Chief Executive Officer; President, Chairman of the Board and Chief Executive Officer of Progressive Casualty Insurance Company, the principal subsidiary of the Registrant, prior to April 2004
W. Thomas Forrester		58	Vice President and Chief Financial Officer (retiring effective March 2007)
Brian C. Domeck		47	Chief Financial Officer beginning in March 2007; Demand Manager for the Direct Business from April 2003 through December 2006; Senior Controller for the Agency Business prior to April 2003
Charles E. Jarrett		49	Vice President, Secretary and Chief Legal Officer
Thomas A. King		47	Vice President; Treasurer since April 2003; Investment Strategist prior to April 2003
Jeffrey W. Basch		48	Vice President and Chief Accounting Officer
John A. Barbagallo		47	Agency Group President since May 2006; Agency Business General Manager of the Atlantic Region from January 2005 to May 2006; Agency Business General Manager of the Great Plains Region from March 2003 through December 2004; Director of Product Research and Development for the Agency Business prior to March 2003
William M. Cody		44	Chief Investment Officer since February 2003; Portfolio Manager prior to February 2003
Susan Patricia Griffith		42	Chief Human Resource Officer since April 2002; Process Manager for Claims Central Services prior to April 2002
Brian J. Passell		50	Claims Group President
John P. Sauerland		42	Direct Group President since June 2006; Claims General Manager of the Midwest Region prior to June 2006
Brian A. Silva		53	Commercial Auto Group President since May 2006; Commercial Auto General Manager prior to May 2006
Raymond M. Voelker		43	Chief Information Officer

25

Section 16(a) Beneficial Ownership Reporting Compliance. Incorporated by reference from the “Section 16(a) Beneficial Ownership Reporting Compliance” section of the Proxy Statement (which can be found in “Security Ownership of Certain Beneficial Owners and Management”).

Code of Ethics. Progressive has a Code of Ethics for the Chief Executive Officer, Chief Financial Officer and other senior financial officers. This Code of Ethics is available, without charge, at: progressive.com/governance, or may be requested in print by writing to: The Progressive Corporation, Investor Relations, 6300 Wilson Mills Road, Box W33, Mayfield Village, Ohio 44143.

We intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding amendments to, and waivers from, the provisions of the foregoing Code of Ethics by posting such information on our Internet Web site at: progressive.com/governance.

Shareholder-Proposed Candidate Procedures. There were no material changes to the Company’s shareholder-proposed candidate procedures during 2006. The description of those procedures is incorporated by reference from the “Shareholder-Proposed Candidate Procedures” section of the Proxy Statement (which can be found in “Other Board of Directors Information”).

Audit Committee. Incorporated by reference from the “Audit Committee” section of the Proxy Statement (which can be found in “Other Board of Directors Information”).

Financial Expert. Incorporated by reference from the “Audit Committee Financial Expert” section of the Proxy Statement (which can be found in “Other Board of Directors Information”).

ITEM 11. EXECUTIVE COMPENSATION

Incorporated by reference from the sections of the Proxy Statement entitled “Compensation Discussion and Analysis,” “Executive Compensation,” “Other Board of Directors Information: Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report.”

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Incorporated by reference from the section of the Proxy Statement entitled “Security Ownership of Certain Beneficial Owners and Management.”

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Incorporated by reference from the section of the Proxy Statement entitled “Other Board of Directors Information” subsections “Board of Directors Independence Standards and Determinations” and “Certain Relationships and Related Transactions.”

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Incorporated by reference from the section of the Proxy Statement entitled “Other Independent Registered Public Accounting Firm Information.”

26

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) Listing of Financial Statements

The following consolidated financial statements included in Progressive’s 2006 Annual Report, which is included as Exhibit 13 to this Form 10-K, are incorporated by reference in Item 8:

• Report of Independent Registered Public Accounting Firm

• Consolidated Statements of Income — For the Years Ended December 31, 2006, 2005 and 2004

• Consolidated Balance Sheets — December 31, 2006 and 2005

• Consolidated Statements of Changes in Shareholders’ Equity — For the Years Ended December 31, 2006, 2005 and 2004

• Consolidated Statements of Cash Flows — For the Years Ended December 31, 2006, 2005 and 2004

• Notes to Consolidated Financial Statements

• Supplemental Information (Unaudited)

(a)(2) Listing of Financial Statement Schedules

The following financial statement schedules, Report of Independent Registered Public Accounting Firm and Consent of Independent Registered Public Accounting Firm are included in Item 15(c):

• Schedule I — Summary of Investments — Other than Investments in Related Parties

• Schedule II — Condensed Financial Information of Registrant

• Schedule III — Supplementary Insurance Information

• Schedule IV — Reinsurance

• Schedule VI — Supplemental Information Concerning Property-Casualty Insurance Operations

• Report of Independent Registered Public Accounting Firm on Financial Statement Schedules

• Consent of Independent Registered Public Accounting Firm

• No other schedules are required to be filed herewith pursuant to Article 7 of Regulation S-X.

(a)(3) Listing of Exhibits

See exhibit index contained herein beginning at page 40. Management contracts and compensatory plans and arrangements are identified in the Exhibit Index as Exhibit Nos.10.5 through 10.70.

(b) Exhibits

The exhibits in response to this portion of Item 15 are submitted concurrently with this report.

(c) Financial Statement Schedules

27

SCHEDULE I — SUMMARY OF INVESTMENTS — OTHER THAN INVESTMENTS IN RELATED PARTIES

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
(millions)

	December 31, 2006
					Amount At Which
					Shown In The
Type of Investment	Cost		Fair Value		Balance Sheet
Available-for-sale
Fixed maturities:
Bonds:
United States Government and government agencies and authorities	$	3,195.1	$	3,203.4	$	3,203.4
States, municipalities and political subdivisions		3,124.2		3,119.7		3,119.7
Foreign government obligations		29.8		29.8		29.8
Public utilities		50.0		49.3		49.3
Corporate and other debt securities		1,075.0		1,067.5		1,067.5
Asset-backed securities		2,387.4		2,390.1		2,390.1
Redeemable preferred stock		98.1		99.1		99.1
Total fixed maturities		9,959.6		9,958.9		9,958.9
Equity securities:
Common stocks:
Public utilities		140.3		238.3		238.3
Banks, trusts and insurance companies		341.1		560.5		560.5
Industrial, miscellaneous and all other		987.6		1,569.3		1,569.3
Nonredeemable preferred stocks		1,761.4		1,781.0		1,781.0
Total equity securities		3,230.4		4,149.1		4,149.1
Short-term investments:
Auction rate municipal obligations		99.4		99.4		99.4
Auction rate preferred stocks		69.2		69.4		69.4
Other short-term investments		412.4		412.4		412.4
Total short-term investments		581.0		581.2		581.2
Total investments	$	13,771.0	$	14,689.2	$	14,689.2

Progressive did not have any securities of any one issuer with an aggregate cost or fair value exceeding 10% of total shareholders’ equity at December 31, 2006.

28

SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CONDENSED STATEMENTS OF INCOME

THE PROGRESSIVE CORPORATION (PARENT COMPANY)
(millions)

	Years Ended December 31,
	2006			2005			2004
Revenues
Dividends from subsidiaries*	$	1,635.5		$	1,625.9		$	2,123.8
Intercompany investment income*		85.9			33.9			13.2
		1,721.4			1,659.8			2,137.0
Expenses
Interest expense		81.3			85.6			86.1
Deferred compensation — stock price appreciation (depreciation)1		(4.4	)		6.6			.4
Other operating costs and expenses		3.0			2.3			5.4
		79.9			94.5			91.9
Income before income taxes and other items below		1,641.5			1,565.3			2,045.1
Income tax provision (benefit)		1.7			(21.5	)		(34.4	)
Net income — parent company only		1,639.8			1,586.8			2,079.5
Net income (loss) of subsidiaries after current year dividend distributions		7.7			(192.9	)		(430.8	)
Net income — consolidated	$	1,647.5		$	1,393.9		$	1,648.7

*	Eliminated in consolidation.
1	See Note 5 — Employee Benefit Plans on page 32.

See notes to condensed financial statements.

29

SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

CONDENSED BALANCE SHEETS

THE PROGRESSIVE CORPORATION (PARENT COMPANY)
(millions)

	December 31,
	2006		2005
ASSETS
Investment in non-consolidated affiliates	$	1.0	$	1.0
Investment in subsidiaries*		5,780.5		5,365.1
Receivable from investment subsidiary*		2,186.4		1,986.1
Intercompany receivable*		109.1		87.0
Income taxes		7.5		26.5
Other assets		75.7		61.1
TOTAL ASSETS	$	8,160.2	$	7,526.8
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable and accrued expenses	$	128.1	$	134.4
Debt		1,185.5		1,284.9
Total liabilities		1,313.6		1,419.3
Shareholders’ equity:
Common Shares, $1.00 par value (authorized 900.0 and 600.0 shares; issued 798.7, and 213.1, including treasury shares of 50.7 and 15.8)		748.0		197.3
Paid-in capital		847.4		848.2
Unamortized restricted stock1		—		(62.7	)
Accumulated other comprehensive income:
Net unrealized gains on investment in equity securities of consolidated subsidiaries		596.8		390.1
Net unrealized gains on forecasted transactions		7.5		8.6
Retained earnings		4,646.9		4,726.0
Total shareholders’ equity		6,846.6		6,107.5
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	8,160.2	$	7,526.8

*	Eliminated in consolidation.
1	Upon adoption of SFAS 123(R), companies were required to eliminate any unearned compensation (i.e., contra-equity) accounts against the appropriate equity accounts. As a result, as of January 1, 2006, we were required to reclassify $62.7 million of “Unamortized restricted stock,” of which $51.5 million related to equity awards and $11.2 million related to liability awards.

See notes to condensed financial statements.

30

SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

CONDENSED STATEMENTS OF CASH FLOWS

THE PROGRESSIVE CORPORATION (PARENT COMPANY)
(millions)

	Years Ended December 31,
	2006			2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,647.5		$	1,393.9		$	1,648.7
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net (income) loss of subsidiaries after current year dividend distributions		(7.7	)		192.9			430.8
Amortization of stock-based compensation		1.6			1.1			1.1
Changes in:
Intercompany receivable or payable		(22.1	)		126.0			(44.7	)
Accounts payable and accrued expenses		5.1			18.0			2.9
Income taxes		19.0			(116.5	)		28.6
Tax benefit from exercise/vesting of stock-based compensation1		—			41.2			44.3
Other, net		(9.6	)		(11.3	)		(12.3	)
Net cash provided by operating activities		1,633.8			1,645.3			2,099.4
CASH FLOWS FROM INVESTING ACTIVITIES:
Additional investments in equity securities of consolidated subsidiaries		(176.1	)		(158.9	)		(499.7	)
Received from (paid to) investment subsidiary		(200.3	)		(1,024.1	)		200.4
Net cash used in investing activities		(376.4	)		(1,183.0	)		(299.3	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options		43.3			44.2			51.7
Tax benefit from exercise/vesting of stock-based compensation1		38.8			—			—
Payment of debt		(100.0	)		—			(200.0	)
Dividends paid to shareholders		(25.0	)		(23.7	)		(23.3	)
Acquisition of treasury shares		(1,214.5	)		(482.8	)		(1,628.5	)
Net cash used in financing activities		(1,257.4	)		(462.3	)		(1,800.1	)
Change in cash		—			—			—
Cash, beginning of year		—			—			—
Cash, end of year	$	—		$	—		$	—

¹ Reclassified pursuant to the adoption of SFAS 123(R).

See notes to condensed financial statements.

31

SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

NOTES TO CONDENSED FINANCIAL STATEMENTS

The accompanying condensed financial statements of The Progressive Corporation should be read in conjunction with the consolidated financial statements and notes thereto of The Progressive Corporation and subsidiaries included in Progressive’s 2006 Annual Report to Shareholders, which is included as Exhibit 13 to this Form 10-K.

Note 1 Statement of Cash Flows — For the purpose of the Statements of Cash Flows, cash includes only bank demand deposits. The Progressive Corporation does not hold any cash since its funds are maintained in a non-insurance, investment subsidiary. The Progressive Corporation has unrestricted access to these funds to meet its holding company obligations. The Progressive Corporation paid income taxes of $739.0 million in 2006, $767.0 million in 2005 and $709.0 million in 2004, respectively. Total interest paid was $81.3 million in 2006 and $85.0 million in 2005 and $91.6 million in 2004. Non-cash activity includes the liability for deferred restricted stock compensation (prior to the adoption of SFAS 123(R)) and the contribution from The Progressive Corporation of its Common Shares to certain subsidiaries, subject to restricted stock awards granted to employees.

The Progressive Corporation effected a 4-for-1 stock split in the form of a stock dividend to shareholders on May 18, 2006. We reflected the issuance of the additional Common Shares by transferring $585.9 million from retained earnings to the common stock account. All share, per share and equivalent share amounts and stock prices were adjusted to give effect to the split. Treasury shares were not split.

The Progressive Corporation previously classified dividends received from consolidated subsidiaries (i.e., dividend income) as an investing activity and cash loaned to a subsidiary as a financing activity. The Progressive Corporation revised these classifications to instead appropriately disclose dividend income as an operating activity and loans to a subsidiary as an investing activity in 2006, with conforming changes in 2005 and 2004.

Note 2 Income Taxes — The Progressive Corporation files a consolidated federal income tax return with all subsidiaries and acts as an agent for the consolidated tax group when making payments to the Internal Revenue Service. Income taxes in the accompanying Condensed Balance Sheets are comprised of the parent company’s net deferred tax assets offset by the consolidated group’s net income taxes payable/recoverable. The Progressive Corporation and its subsidiaries have adopted, pursuant to a written agreement, a method of allocating consolidated Federal income taxes. Amounts allocated to the subsidiaries under the written agreement are included in Intercompany Receivable in the accompanying Condensed Balance Sheets.

Note 3 Investments in Consolidated Subsidiaries — The Progressive Corporation, through its investment in consolidated subsidiaries, recognizes the changes in unrealized gains (losses) on available-for-sale securities of the subsidiaries. These amounts were:

(millions)	2006			2005			2004
Changes in unrealized gains (losses):
Available-for-sale: fixed maturities	$	38.2		$	(150.7	)	$	(122.4	)
equity securities		279.9			81.4			148.4
Deferred income taxes		(111.4	)		24.3			(9.1	)
	$	206.7		$	(45.0	)	$	16.9

Note 4 Debt — The information relating to debt is incorporated by reference from Note 4, Debt, on page App.-A-15 of the Annual Report, which is included as Exhibit 13 to this Form 10-K.

Note 5 Employee Benefit Plans — The information relating to incentive compensation plans and deferred compensation is incorporated by reference from Note 8, Employee Benefit Plans, beginning on page App.-A-17 of the Annual Report, which is included as Exhibit 13 to this Form 10-K.

Note 6 Reclassifications — In the Condensed Statements of Income, “Deferred compensation-stock price appreciation (depreciation)” was reclassified out of “Other operating costs and expenses.” There was no impact on total expenses or total net income.

32

SCHEDULE III — SUPPLEMENTARY INSURANCE INFORMATION

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
(millions)

			Future
			policy				Other
			benefits,				policy						Benefits,		Amortization
	Deferred		losses,				claims						claims,		of deferred
	policy		claims and				and				Net		losses and		policy		Other		Net
	acquisition		loss		Unearned		benefits		Premium		investment		settlement		acquisition		operating		premiums
Segment	costs1		expenses1		premiums1		payable1		revenue		income1,2		expenses		costs		expenses		written
Year ended December 31, 2006:
Personal Lines									$	12,241.0			$	8,254.7	$	1,231.4	$	1,249.6	$	12,208.8
Commercial Auto										1,851.9				1,129.2		209.8		146.4		1,898.0
Other indemnity										25.0				11.0		.7		6.8		25.2
Total	$	441.0	$	5,725.0	$	4,335.0	$	—	$	14,117.9	$	635.9	$	9,394.9	$	1,441.9	$	1,402.8	$	14,132.0
Year ended December 31, 2005:
Personal Lines									$	12,069.3			$	8,310.3	$	1,256.9	$	1,168.8	$	12,182.9
Commercial Auto										1,667.8				1,041.5		190.9		137.4		1,801.2
Other indemnity										27.3				13.0		.4		6.0		23.5
Total	$	444.8	$	5,660.3	$	4,335.1	$	—	$	13,764.4	$	524.6	$	9,364.8	$	1,448.2	$	1,312.2	$	14,007.6
Year ended December 31, 2004:
Personal Lines									$	11,611.9			$	7,629.3	$	1,241.8	$	1,107.0	$	11,735.8
Commercial Auto										1,524.1				909.9		173.4		119.4		1,616.6
Other indemnity										33.9				15.8		2.8		12.2		25.7
Total	$	432.2	$	5,285.6	$	4,108.0	$	—	$	13,169.9	$	470.5	$	8,555.0	$	1,418.0	$	1,238.6	$	13,378.1

1	Progressive does not allocate assets, liabilities or investment income to operating segments.
2	Excludes net realized gains (losses) on securities.

33

SCHEDULE IV — REINSURANCE

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
(millions)

					Assumed				Percentage
			Ceded to		From				of Amount
	Gross		Other		Other				Assumed
Year Ended:	Amount		Companies		Companies		Net Amount		to Net
December 31, 2006
Premiums earned:
Property and liability insurance	$	14,386.3	$	268.4	$	—	$	14,117.9		—
December 31, 2005
Premiums earned:
Property and liability insurance	$	14,066.2	$	301.8	$	—	$	13,764.4		—
December 31, 2004
Premiums earned:
Property and liability insurance	$	13,480.8	$	310.9	$	—	$	13,169.9		—

34

SCHEDULE VI -SUPPLEMENTAL INFORMATION CONCERNING PROPERTY — CASUALTY INSURANCE OPERATIONS

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
(millions)

	Losses and Loss Adjustment					Paid Losses and Loss
	Expenses Incurred Related to					Adjustment Expenses
Year Ended	Current Year		Prior Years
December 31, 2006	$	9,641.8	$	(246.9	)		$	9,344.4
December 31, 2005	$	9,720.7	$	(355.9	)		$	9,000.2
December 31, 2004	$	8,664.1	$	(109.1	)		$	7,952.9

Pursuant to Rule 12-18 of Regulation S-X. See Schedule III, page 33, for the additional information required in Schedule VI.

35

Report of Independent Registered Public Accounting Firm on Financial Statement Schedules

To the Board of Directors and Shareholders
of The Progressive Corporation:

Our audits of the consolidated financial statements, of management’s assessment of the effectiveness of internal control over financial reporting and of the effectiveness of internal control over financial reporting referred to in our report dated February 28, 2007 appearing in the 2006 Annual Report to Shareholders of The Progressive Corporation (which report, consolidated financial statements and assessment are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedules listed in Item 15(a)(2) of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP
Cleveland, Ohio
February 28, 2007

36

Consent of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders
of The Progressive Corporation:

We hereby consent to the incorporation by reference in the Registration Statements on:

Form	Filing No.		Filing Date
S-8		333-104646	April 21, 2003
S-8		333-104653	April 21, 2003
S-3		333-100674	October 22, 2002
S-8		333-41238	July 12, 2000
S-8		333-51613	May 1, 1998
S-8		333-25197	April 15, 1997
S-8		33-57121	December 29, 1994
S-8		33-64210	June 10, 1993
S-8		33-51034	August 20, 1992
S-8		33-38793	February 4, 1991
S-8		33-37707	November 9, 1990
S-8		33-33240	January 31, 1990
S-8		33-16509	August 14, 1987

of The Progressive Corporation of our report dated February 28, 2007 relating to the financial statements, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated February 28, 2007 relating to the financial statement schedules, which appears in this Form 10-K.

/s/ PRICEWATERHOUSECOOPERS LLP  

Cleveland, Ohio
February 28, 2007

37

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	THE PROGRESSIVE CORPORATION
February 28, 2007	By:	/s/ Glenn M. Renwick
		Glenn M. Renwick
		Director, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

* Peter B. Lewis	Director, Chairman of the Board	February 28, 2007
/s/ Glenn M. Renwick Glenn M. Renwick	Director, President and Chief Executive Officer	February 28, 2007
/s/ W. Thomas Forrester W. Thomas Forrester	Vice President and Chief Financial Officer	February 28, 2007
/s/ Jeffrey W. Basch Jeffrey W. Basch	Vice President and Chief Accounting Officer	February 28, 2007
* Charles A. Davis	Director	February 28, 2007
* Stephen R. Hardis	Director	February 28, 2007
* Bernadine P. Healy, M.D.	Director	February 28, 2007
* Jeffrey D. Kelly	Director	February 28, 2007
* Abby F. Kohnstamm	Director	February 28, 2007
*	Director	February 28, 2007
Philip A. Laskawy

38

* Norman S. Matthews	Director	February 28, 2007
* Patrick H. Nettles, Ph.D.	Director	February 28, 2007
* Donald B. Shackelford	Director	February 28, 2007
* Bradley T. Sheares, Ph.D.	Director	February 28, 2007

* Charles E. Jarrett, by signing his name hereto, does sign this document on behalf of the persons indicated above pursuant to a power of attorney duly executed by such persons.

By:	/s/ Charles E. Jarrett Charles E. Jarrett	February 28, 2007
	Attorney-in-fact

39

EXHIBIT INDEX

Exhibit No.	Form
Under	10-K
Reg. S-K,	Exhibit			If Incorporated by Reference, Documents with
Item 601	No.		Description of Exhibit	Which Exhibit was Previously Filed with SEC
(3)(i)		3.1	Amended Articles of Incorporation of The Progressive Corporation (as amended April 21, 2006)	Quarterly Report on Form 10-Q (filed with SEC on May 4, 2006; Exhibit 3(A) therein)
(3)(ii)		3.2	Code of Regulations of The Progressive Corporation (as amended April 15, 2005)	Quarterly Report on Form 10-Q (filed with SEC on May 9, 2005; Exhibit 3(A) therein)
(4)		4.1	Commercial Note: Demand Line of Credit with National City Bank dated December 13, 2005	Current Report on Form 8-K (filed with SEC on December 13, 2005; Exhibit 4(A) therein)
(4)		4.2	Form of 6.375% Senior Notes due 2012, issued in the aggregate principal amount of $350,000,000 under the 1993 Senior Indenture, as amended and supplemented (see exhibit 4.6 below)	Annual Report on Form 10-K (filed with SEC on February 28, 2006; Exhibit 4(I) therein)
(4)		4.3	Form of 7% Notes due 2013 issued in the aggregate principal amount of $150,000,000 under the 1993 Senior Indenture	Annual Report on Form 10-K (filed with SEC on March 1, 2005; Exhibit 4(E) therein)
(4)		4.4	Form of 6 5/8% Senior Notes due 2029, issued in the aggregate principal amount of $300,000,000 under the 1993 Senior Indenture, as amended and supplemented	Annual Report on Form 10-K (filed with SEC on March 4, 2004; Exhibit 4(I) therein)
(4)		4.5	Form of 6.25% Senior Notes due 2032, issued in the aggregate principal amount of $400,000,000 under the 1993 Senior Indenture, as amended and supplemented	Current Report on Form 8-K (filed with SEC on November 21, 2002; Exhibit 4.7 therein)
(4)		4.6	Indenture dated as of September 15, 1993 between Progressive and State Street Bank and Trust Company (successor in interest to The First National Bank of Boston), as Trustee (“1993 Senior Indenture”) (including table of contents and cross-reference sheet)	Registration Statement No. 333-48935 (filed with SEC on March 31, 1998; Exhibit 4.1 therein)

40

EXHIBIT INDEX

Exhibit No.	Form
Under	10-K
Reg. S-K,	Exhibit			If Incorporated by Reference, Documents with
Item 601	No.		Description of Exhibit	Which Exhibit was Previously Filed with SEC
(4)		4.7	First Supplemental Indenture dated March 15, 1996 between Progressive and State Street Bank and Trust Company, evidencing the designation of State Street Bank and Trust Company as successor Trustee under the 1993 Senior Indenture	Registration Statement No. 333-01745 (filed with SEC on March 15, 1996; Exhibit 4.2 therein)
(4)		4.8	Second Supplemental Indenture dated February 26, 1999 between Progressive and State Street Bank and Trust Company, as Trustee	Annual Report on Form 10-K (filed with SEC on March 4, 2004; Exhibit 4(H) therein)
(4)		4.9	Third Supplemental Indenture dated December 7, 2001 between Progressive and State Street Bank and Trust Company, as Trustee	Annual Report on Form 10-K (filed with SEC on February 28, 2006; Exhibit 4(H) therein)
(4)		4.10	Fourth Supplemental Indenture dated November 21, 2002 between Progressive and State Street Bank and Trust Company, as Trustee	Current Report on Form 8-K (filed with SEC on November 21, 2002; Exhibit 4.6 therein)
(10)(ii)		10.1	Aircraft Management Agreement dated April 23, 1999, between Village Transport Corp. and Acme Operating Corporation	Annual Report on Form 10-K (filed with SEC on February 28, 2006; Exhibit 10(A) therein)
(10)(ii)		10.2	Hangar Sharing Agreement dated as of June 1, 2002 between Progressive Casualty Insurance Company and Acme Operating Corporation	Annual Report on Form 10-K (filed with SEC on March 14, 2003; Exhibit 10(B) therein)
(10)(ii)		10.3	Sublease Agreement for Aircraft Hangar dated as of August 21, 2006 between Progressive Casualty Insurance Company and Acme Operating Corporation	Current Report on Form 8-K (filed with SEC on September 20, 2006; Exhibit 10(A) therein)
(10)(ii)		10.4	Reimbursement Agreement dated December 23, 2002 between Village Transport Corp. and Acme Operating Corporation	Annual Report on Form 10-K (filed with SEC on March 14, 2003; Exhibit 10(C) therein)
(10)(iii)		10.5	The Progressive Corporation 2005 Gainsharing Plan	Current Report on Form 8-K (filed with SEC on February 1, 2005; Exhibit 10(A) therein)
(10)(iii)		10.6	The Progressive Corporation 2006 Gainsharing Plan	Current Report on Form 8-K (filed with SEC on February 9, 2006; Exhibit 10(A) therein)

41

EXHIBIT INDEX

Exhibit No.	Form
Under	10-K
Reg. S-K,	Exhibit			If Incorporated by Reference, Documents with
Item 601	No.		Description of Exhibit	Which Exhibit was Previously Filed with SEC
(10)(iii)		10.7	Amendment to The Progressive Corporation 2006 Gainsharing Plan	Quarterly Report on Form 10-Q (filed with SEC on May 4, 2006; Exhibit 10(A) therein)
(10)(iii)		10.8	The Progressive Corporation 2007 Gainsharing Plan	Filed herewith
(10)(iii)		10.9	2005 Progressive Capital Management Bonus Plan	Current Report on Form 8-K (filed with SEC on February 1, 2005; Exhibit 10(C) therein)
(10)(iii)		10.10	2006 Progressive Capital Management Bonus Plan	Current Report on Form 8-K (filed with SEC on February 9, 2006; Exhibit 10(C) therein)
(10)(iii)		10.11	The Progressive Corporation 1999 Executive Bonus Plan (as amended on January 31, 2003)	Annual Report on Form 10-K (filed with SEC on March 14, 2003; Exhibit 10(H) therein)
(10)(iii)		10.12	The Progressive Corporation 2004 Executive Bonus Plan	Annual Report on Form 10-K (filed with SEC on March 4, 2004; Exhibit 10(J) therein)
(10)(iii)		10.13	The Progressive Corporation 2007 Executive Bonus Plan	Current Report on Form 8-K (filed with SEC on February 8, 2007; Exhibit 10(A) therein)
(10)(iii)		10.14	The Progressive Corporation 2005 Information Technology Incentive Plan	Current Report on Form 8-K (filed with SEC on February 1, 2005; Exhibit 10(B) therein)
(10)(iii)		10.15	The Progressive Corporation 2006 Information Technology Incentive Plan	Current Report on Form 8-K (filed with SEC on February 9, 2006; Exhibit 10(B) therein)
(10)(iii)		10.16	The Progressive Corporation 2007 Information Technology Incentive Plan	Filed herewith
(10)(iii)		10.17	The Progressive Corporation 1989 Incentive Plan (amended and restated as of April 24, 1992, as further amended on July 1, 1992 and February 5, 1993)	Schedule TO (filed with SEC on September 14, 2004; Exhibit (d)(5) therein)
(10)(iii)		10.18	Form of Non-Qualified Stock Option Agreement under The Progressive Corporation 1989 Incentive Plan (single award)	Annual Report on Form 10-K (filed with SEC on February 28, 2006; Exhibit 10(P) therein)

42

EXHIBIT INDEX

Exhibit No.	Form
Under	10-K
Reg. S-K,	Exhibit			If Incorporated by Reference, Documents with
Item 601	No.		Description of Exhibit	Which Exhibit was Previously Filed with SEC
(10)(iii)		10.19	Form of Non-Qualified Stock Option Agreement under The Progressive Corporation 1989 Incentive Plan (multiple awards)	Annual Report on Form 10-K (filed with SEC on February 28, 2006; Exhibit 10(Q) therein)
(10)(iii)		10.20	The Progressive Corporation 1995 Incentive Plan	Annual Report on Form 10-K (filed with SEC on February 28, 2006; Exhibit 10(R) therein)
(10)(iii)		10.21	Form of Non-Qualified Stock Option Agreement under The Progressive Corporation 1995 Incentive Plan	Annual Report on Form 10-K (filed with SEC on March 14, 2003; Exhibit 10(M) therein)
(10)(iii)		10.22	Form of Objective-Based (now known as Performance-Based) Non-Qualified Stock Option Agreement under The Progressive Corporation 1995 Incentive Plan	Annual Report on Form 10-K (filed with SEC on February 28, 2006; Exhibit 10(T) therein)
(10)(iii)		10.23	Form of The Progressive Corporation 1995 Incentive Plan Restricted Stock Award Agreement (Time-Based Award)	Annual Report on Form 10-K (filed with SEC on March 1, 2005; Exhibit 10(T) therein)
(10)(iii)		10.24	The Progressive Corporation 2003 Incentive Plan	Registration Statement No. 333-104646 (filed with SEC on April 21, 2003; Exhibit 4(a) therein)
(10)(iii)		10.25	First Amendment to The Progressive Corporation 2003 Incentive Plan	Current Report on Form 8-K (filed with SEC on February 8, 2007; Exhibit 10(B) therein)
(10)(iii)		10.26	Form of The Progressive Corporation 2003 Incentive Plan Restricted Stock Award Agreement (Time-Based Award) (for 2003)	Registration Statement No. 333-104646 (filed with SEC on April 21, 2003; Exhibit 4(b) therein)
(10)(iii)		10.27	Form of The Progressive Corporation 2003 Incentive Plan Restricted Stock Award Agreement (Time-Based Award) (for 2004 and thereafter)	Quarterly Report on Form 10-Q (filed with SEC on May 10, 2004; Exhibit 10(A) therein)
(10)(iii)		10.28	Form of The Progressive Corporation 2003 Incentive Plan Restricted Stock Award Agreement (Performance-Based Award) (for 2003)	Registration Statement No. 333-104646 (filed with SEC on April 21, 2003; Exhibit 4(c) therein)
(10)(iii)		10.29	Form of The Progressive Corporation 2003 Incentive Plan Restricted Stock Award Agreement (Performance-Based Award) (for 2004 and thereafter)	Quarterly Report on Form 10-Q (filed with SEC on May 10, 2004; Exhibit 10(B) therein)

43

EXHIBIT INDEX

Exhibit No.	Form
Under	10-K
Reg. S-K,	Exhibit			If Incorporated by Reference, Documents with
Item 601	No.		Description of Exhibit	Which Exhibit was Previously Filed with SEC
(10)(iii)		10.30	The Progressive Corporation 2003 Directors Equity Incentive Plan	Registration Statement No. 333-104653 (filed with SEC on April 21, 2003; Exhibit 4(a) therein)
(10)(iii)		10.31	Amendment No. 1 to The Progressive Corporation 2003 Directors Equity Incentive Plan	Annual Report on Form 10-K (filed with SEC on March 4, 2004; Exhibit 10(V) therein)
(10)(iii)		10.32	Form of The Progressive Corporation 2003 Directors Equity Incentive Plan Restricted Stock Award Agreement (for 2003)	Registration Statement No. 333-104653 (filed with SEC on April 21, 2003; Exhibit 4(b) therein)
(10)(iii)		10.33	Form of The Progressive Corporation 2003 Directors Equity Incentive Plan Restricted Stock Award Agreement (for 2004 and thereafter)	Quarterly Report on Form 10-Q (filed with SEC on May 10, 2004; Exhibit 10(C) therein)
(10)(iii)		10.34	The Progressive Corporation Executive Deferred Compensation Plan (2003 Amendment and Restatement)	Quarterly Report on Form 10-Q (filed with SEC on May 12, 2003; Exhibit 10(A) therein)
(10)(iii)		10.35	First Amendment to The Progressive Corporation Executive Deferred Compensation Plan (2003 Amendment and Restatement)	Annual Report on Form 10-K (filed with SEC on March 4, 2004; Exhibit 10(Y) therein)
(10)(iii)		10.36	Second Amendment to The Progressive Corporation Executive Deferred Compensation Plan (2003 Amendment and Restatement)	Annual Report on Form 10-K (filed with SEC on March 4, 2004; Exhibit 10(Z) therein)
(10)(iii)		10.37	Third Amendment to The Progressive Corporation Executive Deferred Compensation Plan (2003 Amendment and Restatement)	Current Report on Form 8-K (filed with SEC on March 17, 2005; Exhibit 10(A) therein)
(10)(iii)		10.38	Fourth Amendment to The Progressive Corporation Executive Deferred Compensation Plan (2003 Amendment and Restatement)	Current Report on Form 8-K (filed with SEC on December 13, 2005; Exhibit 10(B) therein)
(10)(iii)		10.39	Form of The Progressive Corporation Executive Deferred Compensation Plan Performance-Based Restricted Stock Deferral Agreement (for 2003)	Quarterly Report on Form 10-Q (filed with SEC on May 12, 2003; Exhibit 10(B) therein)

44

EXHIBIT INDEX

Exhibit No.	Form
Under	10-K
Reg. S-K,	Exhibit			If Incorporated by Reference, Documents with
Item 601	No.		Description of Exhibit	Which Exhibit was Previously Filed with SEC
(10)(iii)		10.40	Form of The Progressive Corporation Executive Deferred Compensation Plan Deferral Agreement (for 2004)	Annual Report on Form 10-K (filed with SEC on March 4, 2004; Exhibit 10(AA) therein)
(10)(iii)		10.41	Form of The Progressive Corporation Executive Deferred Compensation Plan Deferral Agreement (for 2005 and thereafter)	Current Report on Form 8-K (filed with SEC on December 10, 2004; Exhibit 10(a) therein)
(10)(iii)		10.42	Form of The Progressive Corporation Executive Deferred Compensation Plan Performance-Based Restricted Stock Deferral Agreement (for 2004)	Annual Report on Form 10-K (filed with SEC on March 4, 2004; Exhibit 10(AC) therein)
(10)(iii)		10.43	Form of The Progressive Corporation Executive Deferred Compensation Plan Performance-Based Restricted Stock Deferral Agreement (for 2005)	Current Report on Form 8-K (filed with SEC on December 10, 2004; Exhibit 10(c) therein)
(10)(iii)		10.44	Form of The Progressive Corporation Executive Deferred Compensation Plan Performance-Based Restricted Stock Deferral Agreement (for 2006)	Annual Report on Form 10-K (filed with SEC on February 28, 2006; Exhibit 10(CA) therein)
(10)(iii)		10.45	Form of The Progressive Corporation Executive Deferred Compensation Plan Time-Based Restricted Stock Deferral Agreement (for 2003)	Quarterly Report on Form 10-Q (filed with SEC on May 12, 2003; Exhibit 10(C) therein)
(10)(iii)		10.46	Form of The Progressive Corporation Executive Deferred Compensation Plan Time-Based Restricted Stock Deferral Agreement (for 2004)	Annual Report on Form 10-K (filed with SEC on March 4, 2004; Exhibit 10(AE) therein)
(10)(iii)		10.47	Form of The Progressive Corporation Executive Deferred Compensation Plan Time-Based Restricted Stock Deferral Agreement (for 2005)	Current Report on Form 8-K (filed with SEC on December 10, 2004; Exhibit 10(b) therein)
(10)(iii)		10.48	Form of The Progressive Corporation Executive Deferred Compensation Plan Time-Based Restricted Stock Deferral Agreement (for 2006)	Annual Report on Form 10-K (filed with SEC on February 28, 2006; Exhibit 10(CB) therein)

45

EXHIBIT INDEX

Exhibit No.	Form
Under	10-K
Reg. S-K,	Exhibit			If Incorporated by Reference, Documents with
Item 601	No.		Description of Exhibit	Which Exhibit was Previously Filed with SEC
(10)(iii)		10.49	Form of The Progressive Corporation Executive Deferred Compensation Plan Revocation Election for Gainsharing Plan Participants (for 2005)	Current Report on Form 8-K (filed with SEC on December 13, 2005; Exhibit 10(D) therein)
(10)(iii)		10.50	Form of The Progressive Corporation Executive Deferred Compensation Plan Revocation Election for Executive Bonus Plan Participants (for 2005)	Current Report on Form 8-K (filed with SEC on December 13, 2005; Exhibit 10(E) therein)
(10)(iii)		10.51	The Progressive Corporation Executive Deferred Compensation Trust (November 8, 2002 Amendment and Restatement)	Schedule TO (filed with SEC on September 14, 2004; Exhibit (d)(25) therein)
(10)(iii)		10.52	First Amendment to Trust Agreement between Fidelity Management Trust Company and the Company	Schedule TO (filed with SEC on September 14, 2004; Exhibit (d)(26) therein)
(10)(iii)		10.53	The Progressive Corporation Directors Deferral Plan (Amendment and Restatement), as further amended on October 25, 1996	Annual Report on Form 10-K (filed with SEC on February 28, 2006; Exhibit 10(AV) therein)
(10)(iii)		10.54	Form of The Progressive Corporation’s Directors Deferral Plan Agreement	Annual Report on Form 10-K (filed with SEC on February 28, 2006; Exhibit 10(CC) therein)
(10)(iii)		10.55	The Progressive Corporation Directors Restricted Stock Deferral Plan	Annual Report on Form 10-K (filed with SEC on March 4, 2004; Exhibit 10(AH) therein)
(10)(iii)		10.56	First Amendment to The Progressive Corporation Directors Restricted Stock Deferral Plan	Current Report on Form 8-K (filed with SEC on December 13, 2005; Exhibit 10(A) therein)
(10)(iii)		10.57	Form of The Progressive Corporation Directors Restricted Stock Deferral Plan Deferral Agreement (for 2004)	Annual Report on Form 10-K (filed with SEC on March 4, 2004; Exhibit 10(AI) therein)
(10)(iii)		10.58	Form of The Progressive Corporation Directors Restricted Stock Deferral Plan Deferral Agreement (for 2005 and thereafter)	Current Report on Form 8-K (filed with SEC on December 10, 2004; Exhibit 10(d) therein)
(10)(iii)		10.59	Form of The Progressive Corporation Directors Restricted Stock Deferral Plan Revocation Agreement (for 2005)	Current Report on Form 8-K (filed with SEC on December 13, 2005; Exhibit 10(C) therein)

46

EXHIBIT INDEX

Exhibit No.	Form
Under	10-K
Reg. S-K,	Exhibit			If Incorporated by Reference, Documents with
Item 601	No.		Description of Exhibit	Which Exhibit was Previously Filed with SEC
(10)(iii)		10.60	The Progressive Corporation 1990 Directors’ Stock Option Plan (Amended and Restated as of April 24, 1992 and as further amended on July 1, 1992)	Annual Report on Form 10-K (filed with SEC on March 14, 2003; Exhibit 10(T) therein)
(10)(iii)		10.61	The Progressive Corporation 1998 Directors’ Stock Option Plan	Annual Report on Form 10-K (filed with SEC on March 14, 2003; Exhibit 10(U) therein)
(10)(iii)		10.62	Director Compensation Schedule for 2003, 2004 and 2005	Annual Report on Form 10-K (filed with SEC on March 1, 2005; Exhibit 10(AW) therein)
(10)(iii)		10.63	Director Compensation Schedule for 2006 (amounts remained the same for 2007)	Current Report on Form 8-K (filed with SEC on February 9, 2006; Exhibit 10(D) therein)
(10)(iii)		10.64	The Progressive Corporation Executive Separation Allowance Plan	Filed herewith
(10)(iii)		10.65	The Progressive Corporation Executive Separation Allowance Plan (2006 Amendment and Restatement)	Current Report on Form 8-K(filed with SEC on December 13, 2006; Exhibit 10(A) therein)
(10)(iii)		10.66	Form of Termination Agreement [This agreement terminated all prior employment agreements with executive officers. The employment agreements that were terminated were previously filed as Exhibits 10(A) through 10(H) in Progressive’s Quarterly Report on Form 10-Q filed with the SEC on August 13, 2001, Exhibits 10(A) through 10(H) in Progressive’s Quarterly Report on Form 10-Q filed with the SEC on August 13, 2001, Exhibits 10(I) and 10(J) in Progressive’s Quarterly Report on Form 10-Q filed with the SEC on May 12, 2003, and Exhibits 10(A) through 10(C) in Progressive’s Quarterly Report on Form 10-Q filed with the SEC on August 3, 2006.]	Current Report on Form 8-K(filed with SEC on December 13, 2006; Exhibit 10(B) therein)

47

EXHIBIT INDEX

Exhibit No.	Form
Under	10-K
Reg. S-K,	Exhibit			If Incorporated by Reference, Documents with
Item 601	No.		Description of Exhibit	Which Exhibit was Previously Filed with SEC
(10)(iii)		10.67	Employment Agreement dated July 17, 2006 between The Progressive Corporation and John A. Barbagallo [This employment agreement was terminated (see exhibit 10.66 of this Form 10-K for Form of Termination)]	Quarterly Report on Form 10-Q (filed with SEC on August 3, 2006; Exhibit 10(A) therein)
(10)(iii)		10.68	Employment Agreement dated July 17, 2006 between The Progressive Corporation and John P. Sauerland [This employment agreement was terminated (see exhibit 10.66 of this Form 10-K for Form of Termination)]	Quarterly Report on Form 10-Q (filed with SEC on August 3, 2006; Exhibit 10(B) therein)
(10)(iii)		10.69	Employment Agreement dated July 17, 2006 between The Progressive Corporation and Brian A. Silva [This employment agreement was terminated in December 2006 (see exhibit 10.66 of this Form 10-K for Form of Termination)]	Quarterly Report on Form 10-Q (filed with SEC on August 3, 2006; Exhibit 10(C) therein)
(10)(iii)		10.70	Separation Agreement and General Release dated February 23, 2001 between Progressive Casualty Insurance Company and Charles B. Chokel	Annual Report on Form 10-K (filed with SEC on February 28, 2006; Exhibit 10(BG) therein)
(11)		11	Computation of Earnings Per Share	Filed herewith
(12)		12	Computation of Ratio of Earnings to Fixed Charges	Filed herewith
(13)		13	The Progressive Corporation 2006 Annual Report to Shareholders	Filed herewith
(21)		21	Subsidiaries of The Progressive Corporation	Filed herewith
(23)		23	Consent of Independent Registered Public Accounting Firm	Incorporated herein by reference to page 37 of this Annual Report on Form 10-K
(24)		24	Powers of Attorney	Filed herewith

48

EXHIBIT INDEX

Exhibit No.	Form
Under	10-K
Reg. S-K,	Exhibit			If Incorporated by Reference, Documents with
Item 601	No.		Description of Exhibit	Which Exhibit was Previously Filed with SEC
(31)		31.1	Certification of the Principal Executive Officer, Glenn M. Renwick, of The Progressive Corporation, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
(31)		31.2	Certification of the Principal Financial Officer, W. Thomas Forrester, of The Progressive Corporation, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
(32)		32.1	Certification of the Principal Executive Officer, Glenn M. Renwick, of The Progressive Corporation, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
(32)		32.2	Certification of the Principal Financial Officer, W. Thomas Forrester, of The Progressive Corporation, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
(99)		99	Letter to Shareholders from Glenn M. Renwick, President and Chief Executive Officer	Filed herewith

     No other exhibits are required to be filed herewith pursuant to Item 601 of Regulation S-K.

49

EX-10.8

Exhibit 10.8

THE PROGRESSIVE CORPORATION
2007 GAINSHARING PLAN

1.	The Plan. The Progressive Corporation and its subsidiaries (collectively, “Progressive” or the “Company”) have adopted The Progressive Corporation 2007 Gainsharing Plan (the “Plan”) as part of their overall compensation program. The Plan is performance-based and is administered under the direction of the Compensation Committee of the Board of Directors of The Progressive Corporation (the “Committee”). Plan years will coincide with Progressive’s fiscal years.
2.	Participants. Plan participants for each Plan year shall include all officers and regular employees of Progressive, unless determined otherwise by the Committee. The Gainsharing opportunity, if any, for those executive officers who participate in The Progressive Corporation 2004 Executive Bonus Plan or The Progressive Corporation 2007 Executive Bonus Plan will be provided by those plans, although participants in those plans may also participate in this Plan if and to the extent determined by the Committee.
3.	Gainsharing Formula. Annual Gainsharing Payments under the Plan will be determined by application of the following formula:

Annual Gainsharing Payment = Paid Earnings x Target Percentage x Performance Factor

4. Paid Earnings. Paid Earnings for any Plan year shall mean and include the following: regular, used Earned Time Benefit, sick, holiday (excluding, for all purposes hereunder, premium holiday pay for exempt employees), funeral and overtime pay, and retroactive payments of any of the foregoing items, received by the participant during the Plan year for work or services performed as an officer or employee of Progressive.

For purposes of the Plan, Paid Earnings shall exclude all other types of compensation, including, without limitation, any short-term or long-term disability payments made to the participant, the earnings replacement component of any workers’ compensation award, payments from the discretionary cash fund or any other bonus or incentive compensation awards, any dividend payments and unused Earned Time Benefit.

Notwithstanding the foregoing, if at the end of the 24^th pay period of a Plan year, any Plan participant’s then current annual salary exceeds his or her salary range maximum plus $105, then for purposes of computing his or her Annual Gainsharing Payment under the Plan, his or her Paid Earnings shall be equal to the sum of: (i) his or her regular, used Earned Time Benefit, sick, holiday and funeral pay for each bi-weekly pay period during the Plan year, but not to exceed 1/26^th of his or her annual salary range maximum (as in effect as of the end of the applicable pay period) for any such bi-weekly pay period; plus (ii) the full amount of the following items, if any, received by such participant during that Plan year: (a) overtime pay, and (b) retroactive payments of regular, used Earned Time Benefit, sick, holiday, overtime and funeral pay.

1

5. Target Percentages. Target Percentages vary by position. Target Percentages for Plan participants typically are as follows:

POSITION	TARGET %
Senior Executives, Executive Level Managers and Business Leaders		60 - 150	%
Directors of Large Functional Areas		35 - 60	%
Senior Managers		20 - 35	%
Middle Managers		15 - 20	%
Senior Professionals and Entry Level Managers		9 - 20	%
Administrative Support and Entry Level Professionals		0 - 8	%

Target Percentages will be established within the above ranges by, and may be changed with the approval of, the following officers of The Progressive Corporation (collectively, the “Designated Executives”): (a) the Chief Executive Officer, and (b) either the Chief Human Resource Officer or the Chief Financial Officer; provided, however, that only the Committee may establish the Target Percentages for the Company’s executive officers. Target Percentages also may be changed from year to year by the Designated Executives.

If a participant’s position changes during a Plan year resulting in a change in Target Percentage, the Target Percentages used to calculate such participant’s Annual Gainsharing Payment hereunder shall be weighted appropriately.

6. The Performance Factor.

A. General

The Performance Factor shall be determined by the performance scores achieved with respect to profitability and growth outcomes for one or more Performance Components, as defined below. The Performance Components may be weighted to reflect the nature of the individual participant’s assigned responsibilities. The weighting factors may differ among participants and will be determined, and may be changed from year to year, by or under the direction of the Committee.

B. Performance Components

The Performance Components for the Plan year in question shall consist of either:

     (i) Progressive’s “Core Business” (consisting of the Drive business unit, the Direct business unit, the Commercial Auto business unit and the Special Lines business unit, each as described below in more detail); or

2

     (ii) One of the individual business units designated in clause (i) above (each a “business unit”), or a portion of such designated business unit as defined by the Committee (each, a “business sub-unit”).

For purposes of computing a performance score for each Performance Component, operating performance results for each applicable business unit or sub-unit are measured by a performance matrix, as established by or under the direction of the Committee for the Plan year. Each matrix assigns a performance score to various combinations of profitability and growth outcomes for the business unit or business sub-unit, as applicable.

For 2007, and for each Plan year thereafter until otherwise determined by the Committee, separate Gainsharing matrices will be used, and separate performance scores will be determined, for the following individual business units or business sub-units:

• Drive

• Direct—New

• Direct—Renewal

• Commercial Auto—Light Local

• Commercial Auto—Specialty

• Special Lines

For purposes hereof, the Drive business unit includes the Auto business produced by agents or brokers, including Strategic Alliances Drive Auto (but excluding Drive Special Lines business); the Direct business unit includes the Auto business produced by phone or over the Internet (but excludes Direct Special Lines business); and the Special Lines business unit includes Special Lines business generated by agents and brokers and directly by phone or over the Internet.

For purposes of this Plan, the results of the Professional Liability Group, and the results of the Midland Financial Group, Inc. and other businesses in run-off, are excluded from the Drive, Direct, Commercial Auto and Special Lines business units and, thus, from Core Business results. Net operating gains/losses from other products in the Core Business, if any, will be apportioned among the various business units or sub-units in accordance with the respective amount(s) of net earned premiums generated by such products in each such business unit or sub-unit, and the apportioned net operating gains/losses will be included in the calculation of the GAAP combined ratio for such unit(s) or sub-unit(s). Assigned risk business is not included in determining the growth of any business unit or sub-unit, but the net operating gains/losses for such business will be included in the calculation of the GAAP combined ratio for the applicable business unit or sub-unit.

C. Performance Measures

The growth measure for all matrices will be based on policies in force (“PIFs”). For all matrices other than those for the Direct business unit, growth will be measured by the change in average PIFs for the Plan year over average PIFs for the immediately preceding fiscal year. Average PIFs for each of the Plan year

3

and the immediately preceding fiscal year will be determined by adding the fiscal-month-end number of PIFs for each month during such year and dividing by twelve.

For the Direct business unit, the following will apply to the matrices for its business sub-units:

     (i) For the Direct—New matrix, growth will be measured by the change in the number of new policies written during the applicable Plan year that remain in force as of the last day of the Plan year, as compared with the number of new policies written during the immediately preceding fiscal year that remained in force as of the last day of such fiscal year.

     (ii) For the Direct—Renewal matrix, growth will be measured by the Direct business unit’s retention rate for the Plan year (i.e., the relationship, expressed as a percentage, between the number of PIFs on the first day of the Plan year and the number of those same policies that are still in effect as of the last day of the Plan year).

For all matrices, profitability will be measured by the GAAP combined ratio for the Plan year. The GAAP combined ratio will be separately determined for each of the business units and business sub-units identified above. The GAAP combined ratio of each such business unit or sub-unit will then be matched with the growth measure for such business unit or sub-unit, using the applicable Gainsharing matrix, to determine a performance score for the applicable business unit or sub-unit.

D. Calculation of Performance Factor

1. Core Business

For most participants, the Performance Factor will be determined solely by the performance results for the Core Business, calculated in the manner described below.

The performance scores achieved by each of the Drive, Direct, Commercial Auto and Special Lines business units will be determined as follows.

     (i) The performance score for each of the Drive and Special Lines business units will be separately determined directly from the applicable matrix, as described above.

     (ii) The performance score for the Direct business unit will be based on business sub-unit performance, weighted as follows: two-thirds (2/3) from the score determined under the Direct—Renewal matrix and one-third (1/3) from the score determined under the Direct—New matrix.

4

     (iii) The performance score for the Commercial Auto business unit will be determined based on the respective scores determined under the Commercial Auto—Light Local matrix and the Commercial Auto—Specialty matrix, weighted based on the relative amount of net earned premiums generated by each such business sub-unit.

The resulting performance scores for each of the Drive, Direct, Commercial Auto and Special Lines business units will then be multiplied by the applicable weighting factor (based on the percentage of net earned premiums generated by each such business unit during the Plan year), the weighted performance scores will be combined and the sum of the weighted Performance Scores will be the performance score for the Core Business.

2. Core Business Plus Assigned Business Unit’s Performance Component

For all employees who are assigned primarily to one of the business units comprising the Core Business and who are eligible to participate in the Company’s equity incentive plans, the Performance Factor will be based on the performance scores for both the Core Business, as a whole, and his or her assigned business unit. Generally, for these employees, the Performance Factor will be weighted 50% on the Core Business performance score and 50% on his or her assigned business unit’s performance score, unless determined otherwise by or under the direction of the Committee.

With respect to each of the IT Business Leaders selected by the Designated Executives, the Performance Factor will be based on both the Core Business performance score and the performance score of his or her assigned business unit, in such ratio or otherwise weighted as shall be determined by or under the direction of the Committee.

The performance score for each Performance Component (i.e., the Core Business and the employee’s assigned business unit) will be multiplied by the assigned weighting factor to produce a weighted performance score for each such Performance Component. The sum of the weighted performance scores equals the Performance Factor.

E. Limitations

The final Performance Factor can vary from 0 to 2.0, determined under the procedures described above based on actual performance. The final Performance Factor cannot exceed 2.0, regardless of results.

7. Payment Procedures; Deferral. Subject to Paragraph 9 below, no later than December 31 of each Plan year, each participant will receive an initial payment in respect of his or her Annual Gainsharing Payment for that Plan year equal to 75% of an amount calculated on the basis of Paid Earnings for the first 24 pay periods of the Plan year, estimated earnings for the remainder of the Plan year, and performance data through the first 11 months of the Plan year (estimated, if necessary). No later than February 15 of the following year,

5

each participant will receive the balance of his or her Annual Gainsharing Payment, if any, for such Plan year, based on his or her Paid Earnings and performance data for the entire Plan year.

Any Plan participant who is then eligible to participate in The Progressive Corporation Executive Deferred Compensation Plan (“Deferral Plan”) may elect to defer all or a portion of the Annual Gainsharing Payment otherwise payable to him/her under this Plan, subject to and in accordance with the terms of the Deferral Plan.

8.

Other Plans. If, for any Plan year, an employee has been selected to participate in both this Plan and another incentive plan offered by the Company, then with respect to such employee, the Gainsharing formula set forth in Paragraph 3 hereof shall be appropriately adjusted by applying a weighting factor to reflect the proportion of the employee’s total annual incentive opportunity that is being provided by this Plan. The Committee shall have full authority to determine the incentive plan or plans in which any employee will participate during any plan year and, if an employee is selected to participate in more than one plan, the weighting factor that will apply to each such plan.

9.

Qualification Date; Leave of Absence; Withholding . Unless otherwise determined by the Committee, and except as expressly provided herein, in order to be entitled to receive an Annual Gainsharing Payment for any Plan year, the participant must be an active officer or regular employee of the Company on November 30 of the Plan year (“Qualification Date”). Individuals who are hired on or after December 1 of any Plan year are not entitled to an Annual Gainsharing Payment for that Plan year.

Any participant who is on a leave of absence covered by the Family and Medical Leave Act of 1993, personal leave of absence with the approval of the Company, military leave or short or long-term disability on the Qualification Date with respect to any Plan year will be entitled to receive an Annual Gainsharing Payment for such Plan year, calculated as provided in Paragraphs 3 through 6 above and based on the amount of Paid Earnings received by such participant during the Plan year.

Annual Gainsharing Payments will be net of any legally required deductions for federal, state and local taxes and other items.

10.	Non-Transferability. The right to any Annual Gainsharing Payment hereunder may not be sold, transferred, assigned or encumbered by any participant. Nothing herein shall prevent any participant’s interest hereunder from being subject to involuntary attachment, levy or other legal process.
11.	Administration. The Plan shall be administered by or under the direction of the Committee. The Committee shall have the authority to adopt, amend, revise and repeal such rules, guidelines, procedures and practices governing the Plan as it shall, from time to time, in its sole discretion, deem advisable.

The Committee shall have full authority to determine the manner in which the Plan will operate, to interpret the provisions of the Plan and to make all determinations hereunder. All such interpretations and determinations shall be final and binding on Progressive, all Plan participants and all other parties. No such interpretation or determination shall be relied on as a precedent for any similar action or decision.

6

Unless otherwise determined by the Committee, all of the authority of the Committee hereunder (including, without limitation, the authority to administer the Plan, select the persons entitled to participate herein, interpret the provisions thereof, waive any of the requirements specified herein and make determinations hereunder and to select, approve, establish, change or modify Performance Components and their respective formulae, weighting factors, performance targets and Target Percentages) may be exercised by the Designated Executives; provided, however, that only the Committee may take such actions or make such determinations for the Company’s executive officers. In the event of a dispute or conflict, the determination of the Committee will govern.

12.	Termination; Amendment. The Plan may be terminated, amended or revised, in whole or in part, at any time and from time to time by the Committee, in its sole discretion.
13.	Unfunded Obligations. The Plan will be unfunded and all payments due under the Plan shall be made from Progressive’s general assets.
14.	No Employment Rights. Nothing in the Plan shall be construed as conferring upon any person the right to remain a participant in the Plan or to remain employed by Progressive, nor shall the Plan limit Progressive’s right to discipline or discharge any of its officers or employees or change any of their job titles, duties or compensation.
15.	Set-Off Rights. Progressive shall have the unrestricted right to set off against or recover out of any Annual Gainsharing Payment or other sums owed to any participant under the Plan any amounts owed by such participant to Progressive.
16.	Prior Plans. This Plan supersedes all prior plans, agreements, understandings and arrangements regarding bonuses or other cash incentive compensation payable to participants by or due from Progressive. Without limiting the generality of the foregoing, this Plan supersedes and replaces The Progressive Corporation 2006 Gainsharing Plan (the “Prior Plan”), which is and shall be deemed to be terminated as of December 29, 2006 (the “Prior Plan Termination Date”); provided, however, that any bonuses or other sums earned and payable under the Prior Plan with respect to any Plan year ended on or prior to the Prior Plan Termination Date shall be unaffected by such termination and shall be paid to the appropriate participants when and as provided thereunder.
17.	Effective Date. This Plan is adopted, and is to be effective, as of December 30, 2006, which is the commencement of Progressive’s 2007 fiscal year. This Plan shall be effective for the 2007 Plan year (which coincides with Progressive’s 2007 fiscal year) and for each Plan year thereafter unless and until terminated by the Committee.
18.	Governing Law. This Plan shall be interpreted and construed in accordance with the laws of the State of Ohio.

7

EX-10.16

Exhibit 10.16

THE PROGRESSIVE CORPORATION
2007 INFORMATION TECHNOLOGY INCENTIVE PLAN

1. The Progressive Corporation and its subsidiaries (“Progressive” or the “Company”) have adopted The Progressive Corporation 2007 Information Technology Incentive Plan (the “Plan”) as part of their overall compensation program for employees assigned to the Company’s Information Technology Organization (“IT Organization”).

2. There is a strong correlation between computer systems availability and the economic performance of the Company. All three sales channels, customer service and claims handling are dependent on electronic systems. When systems are down, Progressive incurs lost productivity costs and, in some cases, may forfeit revenue opportunities. The Plan is designed to incent employees within the IT Organization to find creative ways to eliminate scheduled and unscheduled system downtime, and shift the risk associated with technology changes away from times when downtime is most costly to the business.

3. A significant aspect of the Plan is that it encourages continuous improvement. Each year, the complexity of the Progressive computing environment increases, as we introduce new applications and increasingly target systems to the end consumer. The target payout for the Plan at a 1.0 Performance Factor will be set at the amount of “up time points” earned the previous year (adjusted proportionately for any change in the duration of the current Plan year). In order to receive a payout above the target, the performance achieved needs to exceed the previous year’s performance level (as so adjusted) in a more complex environment. Plan years will coincide with Progressive’s fiscal years.

4. All regular employees of Progressive (including managers) who are assigned primarily to the IT Organization are eligible to be selected for participation in the Plan. The Chief Executive Officer, after consulting with the Chief Human Resource Officer, (collectively, the “Designated Officers”) shall have the authority to select Plan participants for any given Plan year.

5. Subject to Paragraph 10 below, annual payments under the Plan will be determined by application of the following formula:

Annual IT Incentive Payment = Paid Earnings x Target Percentage x IT Performance Factor.

     The Annual IT Incentive Payment payable to any participant with respect to any given Plan year, as determined by such formula, will be adjusted by a weighing factor, as described in Paragraph 10, and will not exceed $75,000.00.

6. Paid Earnings for any Plan year means and include the following: regular, used Earned Time Benefit, sick, holiday (excluding, for all

purposes hereunder, premium holiday pay for exempt employees), funeral and overtime pay, and retroactive payments of any of the foregoing items, received by the participant during the Plan year for work or services performed as an officer or employee of Progressive.

     For purposes of the Plan, Paid Earnings shall exclude all other types of compensation, including, without limitation, any short-term or long-term disability payments made to the participant, the earnings replacement component of any worker’s compensation award, payments from the discretionary cash fund or any other bonus or incentive compensation awards, any dividend payments and any unused Earned Time Benefit.

-1-

     Notwithstanding the foregoing, if at the end of the 24^th pay period of a Plan year, any Plan participant’s then current annual salary exceeds his or her salary range maximum plus $105, then for purposes of computing his or her Annual IT Incentive Payment under the Plan, his or her Paid Earnings shall be equal to the sum of: (i) his or her regular, used Earned Time Benefit, sick, holiday and funeral pay for each bi-weekly pay period during the Plan year, but not to exceed 1/26^th of his or her annual salary range maximum (as in effect as of the end of the applicable pay period) for any such bi-weekly pay period; plus (ii) the full amount of the following items, if any, received by such participant during that Plan year: (a) overtime pay, and (b) retroactive payments of regular, used Earned Time Benefit, sick, holiday, overtime and funeral pay.

7. Target Percentages vary by position and shall be determined on an annual basis by the Designated Officers.

8. In the discretion of the Designated Officers, participants in this Plan may also participate in The Progressive Corporation 2007 Gainsharing Plan, or any other incentive plan maintained by the Company, or any successor thereto.

9. The IT Performance Factor

     The IT Performance Factor is based on application availability and accuracy measured on a point system, and may vary from 0 to 2.0. Points are awarded for every day that production systems, both mainframe and client/server, are outage free. If there is an outage in any production system, all of the points relating to that application are lost for that day. Measured applications, measured hours, outage definitions, point values and administrative guidelines will be defined on an annual basis by or under the direction of the Designated Officers. A Performance Matrix approved by the Designated Officers will assign a Performance Score to various point levels that may be achieved.

     For 2007, and for each Plan year thereafter until otherwise determined by the Designated Officers, the applicable Plan rules shall be as set forth in Schedule I attached hereto.

     The best possible score in any given week is 10 points per application. Attached hereto as Schedule II is the 2007 Performance Matrix with the breakdown of scores and related outcomes. For 2007, a target of 1.00 will be achieved by earning between 10,251 and 10,254 points out of a possible 10,920 points. The Designated Officers will establish the applicable performance targets, the Performance Scores that will be awarded for various point levels achieved and the maximum potential points that may be earned and the resulting Performance Score for subsequent Plan years.

10. If, for any Plan year, an employee has been selected to participate in both the Plan and another incentive plan offered by the Company, then with respect to such employee, the Annual IT Incentive Payment formula set forth in Paragraph 5 hereof will be appropriately adjusted by applying a weighting factor to reflect the proportion of the employee’s total annual incentive opportunity that is being provided by the Plan. The Designated Officers shall have full authority to determine the incentive plan or plans in which any employee shall participate during any plan year and, if an employee is selected to participate in more than one plan, the weighting factor that will apply to each such plan.

11. Subject to Paragraph 12 below, no later than December 31 of each Plan year, each participant will receive an initial payment in respect of his or her Annual IT Incentive Payment for that Plan year equal to 75% of an amount calculated on the basis of Paid Earnings for the first 24 pay periods of the Plan year, estimated earnings for the remainder of the Plan year and performance data through November of the Plan year. No later than February 15 of the following year, each participant shall

-2-

receive the balance of his or her Annual IT Incentive Payment, if any, for such Plan year, based on his or her Paid Earnings and performance data for the entire Plan year.

12. Unless otherwise determined by the Committee (as defined below), and except as expressly provided herein, in order to be entitled to receive an Annual IT Incentive Payment for any Plan year, the participant must be assigned to the IT Organization and be an active employee of the Company on November 30 of that Plan year (“Qualification Date”). Individuals who are hired on or after December 1 of any Plan year are not entitled to receive an Annual IT Incentive Payment for that Plan year.

     Any participant who is on a leave of absence covered by the Family and Medical Leave Act of 1993, personal leave of absence approved by the Company, military leave or short or long-term disability on the Qualification Date with respect to any Plan year will be entitled to receive an Annual IT Incentive Payment for that Plan year, calculated as provided in Paragraphs 5 and 11 above and based on the amount of Paid Earnings received by such participant for the Plan year.

     Annual IT Incentive Payments will be net of any legally required deductions for federal, state and local taxes and other items.

13. The right to any Annual IT Incentive Payment hereunder may not be sold, transferred, assigned or encumbered by any participant. Nothing herein shall prevent any participant’s interest hereunder from being subject to involuntary attachment, levy or other legal process.

14. The Plan shall be administered by or under the direction of the Compensation Committee of the Board of Directors of The Progressive Corporation (“Committee”). The Committee shall have the authority to adopt, alter, modify, amend and repeal such rules, guidelines, procedures and practices governing the Plan as it shall, from time to time, in its sole discretion, deem advisable.

     The Committee shall have full authority to determine the manner in which the Plan will operate, to interpret the provisions of the Plan and to make all determinations hereunder. All such interpretations and determinations shall be final and binding on Progressive, all Plan participants and all other parties. No such interpretation or determination shall be relied on as a precedent for any similar action or decision.

     Unless otherwise determined by the Committee, all of the authority of the Committee hereunder (including, without limitation, the authority to administer the Plan, select participants in the Plan, interpret the provisions of the Plan, waive any of the requirements specified herein and make determinations hereunder and to establish, change or modify performance targets and measures) may be exercised by the Designated Officers. In the event of a dispute or conflict, the determination of the Committee will govern.

15. The Plan may be terminated, amended or revised, in whole or in part, at any time and from time to time by the Committee, in its sole discretion.

16. The Plan will be unfunded and all payments due under the Plan shall be made from Progressive’s general assets.

17. Nothing in the Plan shall be construed as conferring upon any person the right to remain a participant in the Plan or to remain employed by Progressive, nor shall the Plan limit Progressive’s right to discipline or discharge any of its employees or change any of their job titles, duties or compensation.

18. The Company shall have the unrestricted right to set off against or recover out of any Annual

-3-

IT Incentive Payment or other sums owed to any participant under the Plan any amounts owed by such participant to the Company.

19. This Plan supersedes any and all prior plans, agreements, understandings and arrangements regarding bonuses or other cash incentive compensation payable to participants by or due from Progressive and relating to the availability of computer systems. Without limiting the generality of the foregoing, this Plan supersedes and replaces The Progressive Corporation 2006 Information Technology Incentive Plan (the “Prior Plan”), which is and shall be deemed to be terminated as of December 29, 2006 (the “Prior Plan Termination Date”); provided, that any bonuses or other sums earned and payable under the Prior Plan with respect to any Plan year ended on or prior to the Prior Plan Termination Date shall be unaffected by such termination and shall be paid to the appropriate participants when and as provided thereunder.

20. This Plan is adopted, and is to be effective, as of December 30, 2006, which is the commencement of Progressive’s 2007 fiscal year. This Plan shall be effective for the 2007 Plan year (which coincides with Progressive’s 2007 fiscal year) and for each Plan year thereafter unless and until terminated by the Committee.

21. This Plan shall be interpreted and construed in accordance with the laws of the State of Ohio.

Schedule I

Information Technology Incentive Plan
2007 Rules

1. System Measurements

The intent of this program is to ensure that incidents that have major business impact are counted as an outage. An outage is defined as an event (excluding a telecommunication failure) that prevents 100 or more customers from using an application for more than 15 minutes. We define a customer as anyone who uses our applications or is the recipient of output from our systems. Examples include, but are not limited to: agents, policyholders, claimants, quote requestors, body shop personnel, and internal users.

The measured hours are 24 hours a day, Monday through Saturday. All day Sunday is measured with the exception of our weekly system maintenance window which is from 3:30am until 8:00am EST and, also, one (1) Sunday a quarter from Midnight to 8:00am EST.

Individual application outage clarifications will take precedent over these time frames. See chart below:

-4-

System	Additional Outage Clarifications
Cash Disbursements (CDS)	An outage is defined for Monday through Friday as anytime the system is not available by 7 am. An exception would be any requested Saturday or Sunday access requested by the system owner 24 hours in advance.
Claims MyCars
Claims Decision Point
Claims PACMan
Claims Web Tracker
ClaimStation	An outage is defined as a claim representative’s inability to process claims transactions. This would include the ability to log in, monitor and assign claims, view current claim status, document next steps, make payments, evaluation of current claim, and add/update claim data. As additional core claims transactions are integrated into ClaimStation, they will be included six months after country wide rollout of the new functionality in ClaimStation.
Commercial Auto (PRAT/WFC) Connect
FAO	An outage is defined as an agent’s inability to process transactions, exclusive of quoting. Transactions included in the FAO outage calculation are the highest volume transactions performed by agents. These vital business transactions include logging into the website, making payments, making policy changes, viewing/printing policy documents, and viewing policy, claims and financial reports. An exception would be one (1) Sunday a month (Sunday before Month End) from 3:30am until 5:30am EST.
Internet Special Lines	An outage is defined as an event (excluding call routing licensing issues) preventing quoting and/or selling. An exception would be one (1) Sunday a month (Sunday before Month End) from 3:30am until 5:30am EST.
Internet Auto	An outage is defined as an event (excluding call routing licensing issues) preventing quoting and/or selling. An exception would be one (1) Sunday a month (Sunday before Month End) from 3:30am until 5:30am EST.
Internet Comparison Rating	An outage is defined as an event preventing quoting of both the Comparison and Progressive rates and/or the selling of the Progressive rate, once the quote has entered the Internet Comparison application. This excludes intentional DNQ (Do Not Quote) situations for competitors driven by competitor eligibility rules and call routing licensing issues. An exception would be one (1) Sunday a month (Sunday before Month End) from 3:30am until 5:30am EST, and quarterly scheduled extended Maintenance times.
Online Services
Ownership Work Bench (OWB)
Billing Systems	An outage for the start of day is defined as anytime the POLARIS/ProBill transactions are not available by 6:00am Monday through Saturday.
Policy Services Work Flow (POWR)	An outage is defined as anytime their scanning system is totally unavailable (both locations down) for more than 30 minutes excluding their daily batch window between midnight and 4:00am EST.
ProRater Uploads

-5-

System	Additional Outage Clarifications
PROTEUS (Atlantic, Gulf, Midwest, Pacific)	An outage for start of day is defined as anytime the 30 minute back-up occurs after 6:00am, or causes the application to be unavailable over 30 minutes.
Server Based Rating (SBR)	An outage is defined as an event (excluding call routing licensing issues) that prevents agents from quoting, selling and printing/e-mailing new policies or prevents consumers from quoting or printing. An exception would be one (1) Sunday a month (Sunday before Month End) from 3:30am until 5:30am EST.
Call Flow	A call routing outage is defined as anytime 100 unique customers calls are not successfully completed to Progressive (i.e., fast busy, non-working number recording) within a 15 minute period due to a Progressive error.
Speech Self Service	An outage is defined as an application or infrastructure event impacting 100 unique callers in a 15 minute period that prevents the application from responding to calls, receiving menu transactions, or successfully completing a requested transaction. Exceptions would include customer disconnects, call recording failures, a 10 minute daily window between 2 a.m. — 4 a.m. for ProBill file switching, and scheduled monthly and quarterly maintenance windows (monthly from 3:30 — 8am EST and quarterly from midnight to 8:00am EST).

2. Customer Experience

An incident impacting 100 or more customers is defined as any of the following:

• The business issues an ACC, Letter, call-out, email, etc. because of an IT related problem

• E-mails are sent multiple times to the same person

• EFT (electronic fund transfers) incorrectly occur multiple times

• Bills are sent to the wrong person

• Billing is incorrect by more than $1.00

• Documents are retransmitted (post office, fax or email) for any of the conditions below:

o Print was incorrect

o Forms were missing

o Forms were sent in error

• Policyholder personal information is compromised by sharing or sending data to the wrong person or agent.

3. Availability of an Application.

There can be times when an application is available but a particular transaction could be out of service or malfunctioning. For our measurement purposes, this would typically be counted as an outage.

We recognize there could be an occasion where the unavailable transaction represents insignificant lost functionality and may affect less than 100 customers. These transactions being unavailable would not be counted as an outage.

4. Vendor Service Outages

Vendors are a critical component to our service delivery. We work with three types of vendors, Transaction Service Vendors (Equifax, Choicepoint, Discover, State MVR Centers, etc.), Infrastructure Vendors (IBM, Microsoft, Oracle, etc.), and Hosting Vendors (Convergys). It is the responsibility of the appropriate I/T group to manage and evaluate the quality of service received from these vendors.

For purposes of this program, service disruptions caused by a Transaction Service Vendor or a Hosting Vendor site not being available, that is entirely a vendor issue, will not be counted as an outage. However, we have several arrangements for conversion to an alternate vendor or alternate vendor site

-6-

during an outage. If we are unable to execute the conversion because of a Progressive related issue, this would be counted as an outage.

For purposes of this program, service disruptions caused by an Infrastructure Vendor will be counted as an outage.

5. Slow Response Time

Occasionally an application is available but the response time is poor. Slow response time will not be counted as an outage.

6. Scheduled Maintenance

Occasionally, system or facility work needs to be performed that cannot be completed during our normal maintenance hours (see rule #1 for maintenance hours). In spite of this downtime being scheduled in advance with our customers, it will be counted as an outage.

7. IT Performance and Customer Experience Point Values

IT Performance

Any day without an outage will be awarded the maximum number of points for that day. Point values per day are weighted to correspond with the value to the business based on the volume of transactions. The maximum number of points earned per week is 10 points per application as defined in Rule#1. The point value maximum, by day, is outlined in the following table:

Day	Points per Application		# of Applications		Maximum Points Per Day
Monday		2.0		21	42
Tuesday		2.0		21	42
Wednesday		1.5		21	31.5
Thursday		1.5		21	31.5
Friday		1.5		21	31.5
Saturday		1.0		21	21
Sunday		0.5		21	10.5
Total		10.0		21	210

Point values will not be adjusted for holidays. In other words, if a holiday is celebrated on a Monday it will be given a 2 point value.

IT Customer Experience

Outages that negatively affect customers will be assessed points from the following scale, based on the number of customers impacted.

Customers >	Customers <	Points
100	9,999	5
10,000	99,999	10
100,000	~	20

8. Communications of Status

On a daily basis, we will communicate any outage in the Morning Status Report issued Monday through Friday by ETG. The outage will be highlighted in red.

Each Monday, IT Control will distribute to all IT staff, the “Weekly IT Performance Report”, indicating the previous week’s results as well as the annualized point factor. In addition, a monthly report with year-to-date information will be distributed to all IT staff by the first Friday of the fiscal month.

-7-

9. Appeal Process

Anyone within the organization has the right to appeal an outage. All appeals should be made by email to Ed Locker. Ed will ensure the appeal is presented in the Post Mortem review of the incident. If the outage was misrepresented, a reversal will be carried in the Weekly IT Performance Report and all associated status reports.

If the outage requires a judgment call, it will be reviewed by David Krew, Tom Cunningham, Chris Garson, and Molly Gessler who will act as the Ruling Committee. All judgments made by the Ruling Committee are final.

10. Earned Points Chart for 2007

The attached 2007 Earned Points Chart correlates annual points earned to the IT Performance Factor.

Schedule II

INFORMATION TECHNOLOGY INCENTIVE PLAN
2007 EARNED POINTS CHART

ANNUAL POINTS EARNED		IT PERFORMANCE
Minimum	Maximum	FACTOR
0	9,827	0.00
9,828	9,831	0.01
9,832	9,836	0.02
9,837	9,840	0.03
9,841	9,844	0.04
9,845	9,848	0.05
9,849	9,853	0.06
9,854	9,857	0.07
9,858	9,861	0.08
9,862	9,865	0.09
9,866	9,870	0.10
9,871	9,874	0.11
9,875	9,878	0.12
9,879	9,883	0.13
9,884	9,887	0.14
9,888	9,891	0.15
9,892	9,895	0.16
9,896	9,900	0.17
9,901	9,904	0.18
9,905	9,908	0.19
9,909	9,912	0.20

-8-

ANNUAL POINTS EARNED		IT PERFORMANCE
Minimum	Maximum	FACTOR
9,913	9,917	0.21
9,918	9,921	0.22
9,922	9,925	0.23
9,926	9,929	0.24
9,930	9,934	0.25
9,935	9,938	0.26
9,939	9,942	0.27
9,943	9,947	0.28
9,948	9,951	0.29
9,952	9,955	0.30
9,956	9,959	0.31
9,960	9,964	0.32
9,965	9,968	0.33
9,969	9,972	0.34
9,973	9,976	0.35
9,977	9,981	0.36
9,982	9,985	0.37
9,986	9,989	0.38
9,990	9,994	0.39
9,995	9,998	0.40
9,999	10,002	0.41
10,003	10,006	0.42
10,007	10,011	0.43
10,012	10,015	0.44
10,016	10,019	0.45
10,020	10,023	0.46
10,024	10,028	0.47
10,029	10,032	0.48
10,033	10,036	0.49
10,037	10,041	0.50
10,042	10,045	0.51
10,046	10,049	0.52
10,050	10,053	0.53
10,054	10,058	0.54
10,059	10,062	0.55
10,063	10,066	0.56
10,067	10,070	0.57
10,071	10,075	0.58
10,076	10,079	0.59
10,080	10,083	0.60
10,084	10,087	0.61
10,088	10,092	0.62
10,093	10,096	0.63
10,097	10,100	0.64
10,101	10,105	0.65
10,106	10,109	0.66
10,110	10,113	0.67
10,114	10,117	0.68
10,118	10,122	0.69

-9-

ANNUAL POINTS EARNED		IT PERFORMANCE
Minimum	Maximum	FACTOR
10,123	10,126	0.70
10,127	10,130	0.71
10,131	10,134	0.72
10,135	10,139	0.73
10,140	10,143	0.74
10,144	10,147	0.75
10,148	10,152	0.76
10,153	10,156	0.77
10,157	10,160	0.78
10,161	10,164	0.79
10,165	10,169	0.80
10,170	10,173	0.81
10,174	10,177	0.82
10,178	10,181	0.83
10,182	10,186	0.84
10,187	10,190	0.85
10,191	10,194	0.86
10,195	10,198	0.87
10,199	10,203	0.88
10,204	10,207	0.89
10,208	10,211	0.90
10,212	10,216	0.91
10,217	10,220	0.92
10,221	10,224	0.93
10,225	10,228	0.94
10,229	10,233	0.95
10,234	10,237	0.96
10,238	10,241	0.97
10,242	10,245	0.98
10,246	10,250	0.99
10,251	10,254	1.00
10,255	10,259	1.01
10,260	10,265	1.02
10,266	10,270	1.03
10,271	10,275	1.04
10,276	10,280	1.05
10,281	10,286	1.06
10,287	10,291	1.07
10,292	10,296	1.08
10,297	10,301	1.09
10,302	10,307	1.10
10,308	10,312	1.11
10,313	10,317	1.12
10,318	10,323	1.13
10,324	10,328	1.14
10,329	10,333	1.15
10,334	10,338	1.16
10,339	10,344	1.17
10,345	10,349	1.18

-10-

ANNUAL POINTS EARNED		IT PERFORMANCE
Minimum	Maximum	FACTOR
10,350	10,354	1.19
10,355	10,359	1.20
10,360	10,365	1.21
10,366	10,370	1.22
10,371	10,375	1.23
10,376	10,380	1.24
10,381	10,386	1.25
10,387	10,391	1.26
10,392	10,396	1.27
10,397	10,402	1.28
10,403	10,407	1.29
10,408	10,412	1.30
10,413	10,417	1.31
10,418	10,423	1.32
10,424	10,428	1.33
10,429	10,433	1.34
10,434	10,438	1.35
10,439	10,444	1.36
10,445	10,449	1.37
10,450	10,454	1.38
10,455	10,460	1.39
10,461	10,465	1.40
10,466	10,470	1.41
10,471	10,475	1.42
10,476	10,481	1.43
10,482	10,486	1.44
10,487	10,491	1.45
10,492	10,496	1.46
10,497	10,502	1.47
10,503	10,507	1.48
10,508	10,512	1.49
10,513	10,518	1.50
10,519	10,523	1.51
10,524	10,528	1.52
10,529	10,533	1.53
10,534	10,539	1.54
10,540	10,544	1.55
10,545	10,549	1.56
10,550	10,554	1.57
10,555	10,560	1.58
10,561	10,565	1.59
10,566	10,570	1.60
10,571	10,576	1.61
10,577	10,581	1.62
10,582	10,586	1.63
10,587	10,591	1.64
10,592	10,597	1.65
10,598	10,602	1.66
10,603	10,607	1.67

-11-

ANNUAL POINTS EARNED		IT PERFORMANCE
Minimum	Maximum	FACTOR
10,608	10,612	1.68
10,613	10,618	1.69
10,619	10,623	1.70
10,624	10,628	1.71
10,629	10,633	1.72
10,634	10,639	1.73
10,640	10,644	1.74
10,645	10,649	1.75
10,650	10,655	1.76
10,656	10,660	1.77
10,661	10,665	1.78
10,666	10,670	1.79
10,671	10,676	1.80
10,677	10,681	1.81
10,682	10,686	1.82
10,687	10,691	1.83
10,692	10,697	1.84
10,698	10,702	1.85
10,703	10,717	1.86
10,718	10,731	1.87
10,732	10,746	1.88
10,747	10,760	1.89
10,761	10,775	1.90
10,776	10,789	1.91
10,790	10,804	1.92
10,805	10,818	1.93
10,819	10,833	1.94
10,834	10,847	1.95
10,848	10,862	1.96
10,863	10,876	1.97
10,877	10,891	1.98
10,892	10,905	1.99
10,906	10,920	2.00

-12-

EX-10.64

Exhibit No. 10.64

THE PROGRESSIVE CORPORATION EXECUTIVE SEPARATION
ALLOWANCE PLAN

SECTION 1 — DEFINITIONS

1.1 “Affiliated Company” — means any entity in which the Company owns, directly or indirectly, more than fifty percent (50%) of the stock or assets.

1.2 “Annual Salary” — as to each Eligible Employee means his/her annualized base salary or other base wages immediately prior to his/her Termination Date (including any geographic differential). This term does not include commissions, stock-related awards, incentive compensation, separate pay adjustments or allowances or any other forms of remuneration.

1.3 “Group I Employees” — are those Eligible Employees who are parties to written employment agreements duly authorized and executed by and between the Eligible Employee and Progressive the benefits to which are triggered by a “Change of Control” as defined in those written agreements.

1.4 “Group II Employees” — are those Eligible Employees who, immediately preceding their Termination Date and for at least two years prior thereto, had Gainsharing and Non-Qualified Stock Option (“NQSO”) targets under the then applicable Gainsharing Plan and Incentive Plan, respectively, of greater than fifty percent (50%), exclusive of Group I Employees.

1.5 “Group III Employees” — are those Eligible Employees who, immediately preceding their Termination Date and for at least two years prior thereto, had Gainsharing and NQSO targets under the then applicable Gainsharing and Incentive Plan, respectively, of thirty-five percent (35%) and greater, exclusive of Group I Employees and Group II Employees.

1.6 “Company” — means The Progressive Corporation, an Ohio corporation, or its successors.

1.7 “Disability” — means the inability to perform work due to illness, injury or pregnancy-related condition.

1.8 “Eligible Employee” — means regular, non-temporary, non-union executive employees of Progressive who qualify either as a Group I Employee, Group II Employee or a Group Employee as defined hereunder.

1.9 “Misconduct” — means an Eligible Employee’s commission of a terminable offense under Progressive’s Code of Conduct, as reasonably determined in good faith by the Company.

1.10 “PCIC” — means Progressive Casualty Insurance Company, an Ohio corporation, or its successors.

1.11 “Plan” — means The Progressive Corporation Executive Separation Allowance Plan, as set forth herein and as the same may be amended from time to time.

1.12 “Progressive” — includes the Company and any other entity which from time to time is an Affiliated Company.

1.13 “Reduction in Force” — means a reduction by Progressive in the number of employees working in any of Progressive’s operating divisions.

1.14 “Reorganization” — means Progressive’s elimination of one or more positions or redefinition of the job duties of one or more positions.

1.15 “Separation Agreement and General Release” — means an agreement and release substantially in the forms attached hereto as Exhibits A and B together with such changes, additions and deletions as Progressive, in its sole discretion, may specify.

1.16 “Termination Date” — means the effective date of any Eligible Employee’s termination of employment with Progressive.

SECTION 2 — ENTITLEMENT TO SEPARATION ALLOWANCE

2.1 An Eligible Employee shall be entitled to receive a Separation Allowance under this Plan if (a) Progressive terminates his/her employment for reasons other than resignation (including retirement), job elimination, death, Disability, unsatisfactory job performance or Misconduct; and (b) the Eligible Employee signs a Separation Agreement and General Release and delivers it to the Company within ninety (90) days after the Eligible Employee’s Termination Date. In no event shall any Eligible Employee be entitled to receive a Separation Allowance if (x) his/her employment terminates as a result of a resignation (including retirement), a Reduction in Force or Reorganization, death, Disability, failure to meet job performance standards, Misconduct or any reason other than as a result of the circumstances described in (a) above, or (y) he/she fails to deliver a signed Separation Agreement and General Release to the Company within the time specified above.

SECTION 3 — AMOUNT OF SEPARATION ALLOWANCE

3.1 The Separation Allowance payable to each Eligible Employee who is entitled to such allowance under Section 2 above shall be in the amount as provided below:

Eligible Employee	Separation Allowance
Group I Employee	One year Annual Salary plus Gainsharing. The amount paid as Gainsharing shall equal the higher of a) the highest annual Gainsharing paid to the Group I Employee during the past three years; or b) payment of the Group I Employee’s targeted Gainsharing at a factor of 1.0 in the calendar year of the Termination Date.

Eligible Employee	Separation Allowance
Group II Employee	One-year Annual Salary
Group III Employee	The greater of a) six months of the Group III Employee’s Annual Salary; or b) the amount that would be payable to the Group III Employee if the employee were entitled to benefits under The Progressive Corporation Separation Allowance Plan (the “SAP Plan”), provided that the Separation Allowance paid hereunder shall in no event exceed the employee’s Annual Salary.

3.2 Each Separation Allowance shall be paid in a lump sum within thirty (30) days following the later of (i) the Eligible Employee’s Termination Date or (ii) the expiration of the revocation period referred to in the Eligible Employee’s signed Separation Agreement and General Release. Alternatively, Progressive, in its sole discretion, may elect to pay any Separation Allowance in installments over any period not exceeding twenty-four (24) months after the Eligible Employee’s Termination Date.

3.3 Progressive shall withhold from each Separation Allowance all applicable federal, state, and local taxes, Social Security taxes and other deductions required by law, and any other amounts due Progressive for any reason.

3.4 Each Eligible Employee’s Separation Allowance payable under this Plan shall be reduced by the amount of any state-mandated Separation Allowance or severance payments payable by Progressive to such Eligible Employee.

3.5 Notwithstanding anything herein to the contrary, no Separation Allowance payments shall be made under this Plan to any Eligible Employee more than twenty-four (24) months after his/her Termination Date.

SECTION 4 — ADDITIONAL PAYMENTS AND BENEFITS

4.1 Progressive may elect to provide or pay to any Eligible Employee who is entitled to a Separation Allowance under this Plan such additional payments or benefits, if any, as Progressive, in its sole discretion, shall determine, such as outplacement assistance benefits; reimbursements for the cost of obtaining health, life, disability, employee assistance or other welfare benefits; and other payments and benefits.

SECTION 5 — PROGRESSIVE DISCRETION

5.1 Notwithstanding anything herein to the contrary, no determination by Progressive as to the amount, timing or manner of payment of any Separation Allowance or other payment

or benefit under this Plan shall be regarded as a precedent or guideline for purposes of determining the amount, timing or manner of payment of any other Separation Allowance or other payment or benefit under this Plan, nor shall any such determination otherwise limit Progressive’s discretion provided for under this Plan in any way.

SECTION 6 — ELIGIBILITY UNDER OTHER PLANS AND AGREEMENTS

6.1 Except as provided in Sections 6.2 and 6.3, this Plan shall entirely supersede and replace all policies, plans, agreements, understandings and arrangements adopted or entered into before November 1, 2001 regarding separation allowances, severance pay and/or similar compensation payable by Progressive to terminated Eligible Employees (other than with respect to any Eligible Employees who may have incurred Termination Dates prior to November 1, 2001).

6.2 Section 6.1 of this Plan shall not limit any Eligible Employee’s rights, if any, under the SAP Plan in the event of any Reorganization or Reduction in Force, provided that an Eligible Employee shall only be entitled to receive benefits under the circumstances specified under the Plan and the SAP Plan and shall not be entitled to receive benefits under both this Plan and the SAP Plan.

6.3 Individual employment, separation, severance and other agreements that include provisions regarding separation allowances, severance pay and/or similar compensation following termination of employment and that are entered into in writing with an Eligible Employee shall supersede and replace this Plan, except as otherwise expressly provided by such agreements; however, no such agreement entered into on or after November 1, 2001 shall be effective or enforceable unless approved in writing by PCIC’s Chief Human Resources Officer or the holder of any similar successor office, and nothing in this Plan shall be construed as ratifying or validating any such agreements that have not been so approved.

SECTION 7 — CLAIMS PROCEDURES

7.1 The Company shall establish reasonable procedures under which a claimant, or his/her duly authorized representative, may present a claim for benefits under this Plan.

7.2 Unless such claim is allowed in full by the Company, written notice of the denial shall be furnished to the claimant within ninety (90) days (which may be extended by a period not to exceed an additional ninety (90) days if special circumstances so require and written notice to the claimant is given prior to the expiration of the initial ninety (90) day period describing such circumstances and indicating the date by which the Company expects to render its determination) setting forth the following in a manner calculated to be understood by the claimant:

(i)	The specific reason(s) for the denial;
(ii)	Specific reference(s) to any pertinent provision(s) of the Plan or rules promulgated pursuant thereto on which the denial is based;
(iii)	A description of any additional information or material as may be necessary to perfect the claim, together with an explanation of why it is necessary;

(iv)	A description of the Plan’s claims review procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA following an adverse benefit determination on review; and
(v)	An explanation of the steps to be taken if the claimant wishes to resubmit his/her claim for review.

7.3 Within a reasonable period of time after the denial of the claim, but in any event, not to be more than sixty (60) days, the claimant or his/her duly authorized representative may make written application to the Company for a review of such denial. The claimant or his/her representative, may, upon request and free of charge, review or receive copies of documents, records and other information relevant to the claimant’s claim for benefits, and may submit written comments, documents, records and other information relating to the claim for benefits.

7.4 If an appeal is timely filed, the Company shall conduct a full and fair review of the claim and mail or deliver to the claimant its written decision within sixty (60) days after the claimant’s request for review (which may be extended by a period not to exceed an additional sixty (60) days if special circumstances or a hearing so require and written notice to the claimant is given prior to the expiration of the initial sixty (60) day period describing such special circumstances and indicating the date by which the Company expects to render its determination). In conducting its review, the Company shall take into account all comments, documents, records and other information submitted by the claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. The Company’s decision on review shall:

(i)	Be written in a manner calculated to be understood by the claimant;
(ii)	State the specific reason(s) for the decision;
(iii)	Make specific reference to pertinent provision(s) of the Plan;
(iv)	State that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claimant’s claim for benefits; and
(v)	Include a statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA.

7.5 If a period of time is extended, as permitted under Sections 7.2 and 7.4 above, due to a claimant’s failure to submit information to decide a claim, the period for making the benefit determination on review shall be tolled from the date on which the notification of the extension is sent to the claimant until the date on which the claimant responds to the request for additional information.”

SECTION 8 — AMENDMENT AND TERMINATION

8.1 This Plan may be amended, modified or terminated by the Company in whole or in part at any time for any reason without the consent of any Affiliated Company or any employee or other person, provided that, except for legally required amendments,

modifications and terminations, no such amendment, modification or termination shall impair the rights of any Eligible Employee who incurs a Termination Date prior to the date the Company adopts such amendment or modification or approves such termination.

SECTION 9 — RIGHTS OF SETOFF

9.1 Progressive shall have the unrestricted right and power to set off against, or recover out of, any payments owed an Eligible Employee or other person under this Plan, at the time such payments would have otherwise been payable under this Plan, any amounts owed to Progressive by such Eligible Employee or other person.

SECTION 10 — FUNDING

10.1 All payments pursuant to this Plan shall be made from Progressive’s general funds and nothing contained herein shall be deemed to require Progressive to, and Progressive shall not, physically segregate any sums from its general funds, or create any trust or escrow account, or make any special deposit, in respect of any amounts payable hereunder.

SECTION 11 — ADMINISTRATION

11.1 The Company shall be the Administrator of this Plan and shall be the “named fiduciary” within the meaning of Section 402 of the Employee Retirement Income Security Act of 1974, as amended, and, except as specified elsewhere herein, shall exercise all rights and duties with respect hereto, including without limitation, the right:

(a)	to make and enforce such rules and regulations as are necessary or proper for the efficient administration of this Plan; and
(b)	to interpret and construe this Plan and to decide all disputes and other matters arising hereunder, including but not limited to the right to determine eligibility for benefits and resolve possible ambiguities, inconsistencies or omissions. All such rules, interpretations and decisions shall be applied in a uniform manner to all persons similarly situated.

Except as otherwise specifically provided herein, no action or decision taken in accordance with this Plan by the Company or Progressive shall be relied upon as a precedent for any similar action or decision under any circumstances.

SECTION 12 — EFFECTIVE DATE

12.1 This Plan shall be effective November 1, 2001, but only as to Eligible Employees who incur Termination Dates on or after such date.

     IN WITNESS WHEREOF, The Progressive Corporation has hereunto caused this Plan to be executed by its duly authorized representative as of the 31st day of October, 2001.

     THE PROGRESSIVE CORPORATION

By:	/s/ Charles E. Jarrett
	Charles E. Jarrett, Secretary

EXHIBIT A
SEPARATION AGREEMENT AND GENERAL RELEASE
(GROUP I AND II EMPLOYEES)

THIS AGREEMENT is entered into as of the ___day of                     , 20___ between (“Employee”) and                      (“Employer”) pursuant to The Progressive Corporation Executive Separation Allowance Plan (the “Plan”).

     WHEREAS, Employee’s employment with Employer terminated (or will terminate) effective                     , 200___; and

     WHEREAS, Employee desires to receive certain employment termination benefits under the Plan; and

     WHEREAS, the Plan provides employment termination benefits only to employees who sign a Separation Agreement and General Release in the form specified in the Plan;

     NOW, THEREFORE, Employee and Employer hereby agree as follows:

1.	Employer shall pay Employee a separation allowance of $           pursuant to Section 3 of the Plan in a lump sum on      , 200   [in monthly installments commencing      , 200     ], subject to the limitations specified in the Plan.
2.	Employer shall pay Employee for all credited ETB in accordance with Employer’s standard practices within thirty (30) days following the expiration of the revocation period referred to at the end of this Agreement or at such earlier time as may be required by law.
3.	Employee shall be entitled to continue his/her and his/her dependents’ medical, dental and vision coverages under The Progressive Corporation Group Insurance Plan (“Group Insurance Plan”), subject to the terms, conditions and limitations of the Group Insurance Plan. Employee also shall be entitled to the conversion privileges, if any, applicable to his/her life insurance and/or other coverages under the Group Insurance Plan.
4.	Employer shall provide the following additional payments and/or benefits to Employee:
5.	Employee’s entitlement to pension benefits, if any, shall be determined in accordance with The Progressive Corporation Long-Term Savings Plan.
6.	Employee shall be entitled to whatever other rights or benefits are available to former employees of Progressive under any other written employee benefit plans or programs maintained by Progressive, subject to the terms, conditions and limitations of those plans and programs.

7.	With the exception of the rights and benefits contained in, or expressly referred to in this Agreement, Employee hereby waives any and all rights and benefits Employee now has or might hereafter have acquired under the Plan, The Progressive Corporation Separation Allowance Plan, The 200___Gainsharing Program and any other compensation or bonus programs, employee benefit plans and fringe benefit programs maintained by Progressive or any of its affiliates by virtue of Employee’s employment with Progressive or the termination thereof.
8.	Employee acknowledges the forfeiture of any and all unvested non-qualified stock options (“NQSOs”) awarded to Employee under The Progressive Corporation 1989 Incentive Plan or The Progressive Corporation 1995 Incentive Plan (the “Incentive Plans”). Employee’s rights, if any, under The Progressive Corporation Executive Deferred Compensation Plan, The Progressive Pension Plan and The Incentive Plans (collectively, the “Programs”) shall be determined in accordance with the governing provisions of the Programs as in effect from time to time. For purposes of such Programs, Employee shall be considered to have terminated employment with Progressive on the Separation Date.
9.	In consideration of the above undertakings of Employer, Employee hereby releases Employer, Progressive and their respective affiliates, officers, directors, employees, agents, successors and assigns (collectively, the “Released Entities”), from any and all claims, liabilities, demands, actions, suits and causes of action, whether known or unknown, that Employee ever had or now has against any of the Released Entities, including but not limited to claims arising under the Age Discrimination in Employment Act, as amended, and other claims relating to Employee’s employment with Progressive and the termination of that employment, and claims under The Progressive Corporation Separation Allowance Plan (collectively “Claims”). [If Employee is a California resident, Employee acknowledges that he/she has read and understands California Civil Code Section 1542, which reads as follows:

“A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.”

Employee hereby waives the provisions and protections of California Civil Code Section 1542 and agrees that the above release shall apply to all Claims that Employee ever had or now has against the Released Entities, regardless of whether Employee currently is aware of the Claims or suspects that they exist.]

10.	Employee further agrees that he will not, during the twenty-four (24) month period after the Separation Date, solicit or recruit any person who is a Progressive employee at the time of such solicitation or recruitment (unless such person has theretofore been given notice of the termination of his/her employment by Progressive) to act as an employee, consultant, agent or independent contractor with respect to any insurance or other business.
11.	Employee agrees that Employee will maintain the confidentiality of confidential information which Employee has received by virtue of his/her employment with Progressive and will refrain from using such information or disclosing it to anyone other than Progressive or its employees. For purposes of this Agreement, confidential information is information which Progressive endeavors to keep confidential, including, without limitation, customer lists, employee lists, rate schedules, underwriting information, the terms of contracts and policies, marketing plans, program designs, trade secrets, proprietary information, and any such information provided by a third party to Progressive in confidence. Employee represents that promptly following his/her execution of this Agreement, Employee will return to Progressive any records in his/her possession containing confidential information of Progressive or records which are the property of Progressive.
12.	In the event of any actual or threatened breach by Employee of the provisions of Paragraphs 10 or 11, Progressive shall be entitled to an injunction (including an ex parte temporary restraining order) restraining Employee from violating these provisions. The period provided in Paragraph 10 shall not run and will be suspended during the period of any violation by Employee of Paragraph 10 and, at the conclusion of any such violation, the period will run for its remaining term. Progressive shall also be entitled to recover, as liquidated damages, the amount equal to fifty percent (50%) of the severance paid to Employee under this Agreement.
13.	All payments to be made by Employer under this Agreement are subject to applicable tax withholding, other legally required deductions and (except to the extent prohibited by law) amounts due Progressive for any reason.
14.	All capitalized terms used in this Agreement shall have the meanings given to them in the Plan, unless otherwise required clearly by the context.
15.	This Agreement, together with the Plan and the other documents referred to herein, constitute the entire agreement of the parties, superseding all prior oral or written representations, agreements and understandings relating to the subject matter of this Agreement. Any modifications of this Agreement must be in a writing signed by both parties in order to be effective. Employee may not assign this Agreement or any of his/her

rights or obligations hereunder without Employer’s prior written consent. This Agreement is subject to the terms, provisions and limitations of the Plan in all respects.

16.

Employee has read and understands all of the terms of this Agreement and Employee has been encouraged to consult with an attorney. Employee acknowledges that he/she has been given a period of at least                      (___) days to review this Agreement with an attorney and individuals of his/her own choice and consider its effect, including Employee’s release of rights. Employee signs this Agreement in exchange for the consideration to be given to him/her, which Employee acknowledges is adequate and satisfactory. Neither Progressive nor its agents, representatives or employees have made any representations to Employee concerning the terms or effects of this Agreement other than those contained in this Agreement or the Plan.

IMPORTANT! BEFORE YOU SIGN THIS AGREEMENT YOU SHOULD CONSULT WITH AN ATTORNEY. ALSO, AFTER YOU HAVE SIGNED THIS AGREEMENT YOU HAVE SEVEN (7) DAYS WITHIN WHICH TO REVOKE IT FOR ANY REASON. YOU DO NOT NEED EMPLOYER’S CONSENT IN ORDER TO REVOKE THIS AGREEMENT, BUT YOU MUST GIVE WRITTEN NOTICE OF YOUR REVOCATION TO EMPLOYER WITHIN THE SEVEN (7) DAY REVOCATION PERIOD. THIS AGREEMENT WILL NOT BE EFFECTIVE OR ENFORCEABLE UNTIL THE EXPIRATION OF THE SEVEN (7) DAY REVOCATION PERIOD.

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date indicated above.

Witness	Employee
Witness	Employer
	By:
	Title:

EXHIBIT B
SEPARATION AGREEMENT AND GENERAL RELEASE
(GROUP III EMPLOYEES)

THIS AGREEMENT is entered into as of the ___day of                     , 20___between (“Employee”) and                      (“Employer”) pursuant to The Progressive Corporation Executive Separation Allowance Plan (the “Plan”).

     WHEREAS, Employee’s employment with Employer terminated (or will terminate) effective                     , 200___; and

     WHEREAS, Employee desires to receive certain employment termination benefits under the Plan; and

     WHEREAS, the Plan provides employment termination benefits only to employees who sign a Separation Agreement and General Release in the form specified in the Plan;

     NOW, THEREFORE, Employee and Employer hereby agree as follows:

1.	Employer shall pay Employee a separation allowance of $           pursuant to Section 3 of the Plan in a lump sum on      , 200    [in monthly installments commencing      , 200     ], subject to the limitations specified in the Plan.
2.	Employer shall pay Employee for all credited ETB in accordance with Employer’s standard practices within thirty (30) days following the expiration of the revocation period referred to at the end of this Agreement or at such earlier time as may be required by law.
3.	Employee shall be entitled to continue his/her and his/her dependents’ medical, dental and vision coverages under The Progressive Corporation Group Insurance Plan (“Group Insurance Plan”), subject to the terms, conditions and limitations of the Group Insurance Plan. Employee also shall be entitled to the conversion privileges, if any, applicable to his/her life insurance and/or other coverages under the Group Insurance Plan.
4.	Employer shall provide the following additional payments and/or benefits to Employee:
5.	Employee’s entitlement to pension benefits, if any, shall be determined in accordance with The Progressive Corporation Long-Term Savings Plan.
6.	Employee shall be entitled to whatever other rights or benefits are available to former employees of Progressive under any other written employee benefit plans or programs maintained by Progressive, subject to the terms, conditions and

7.	With the exception of the rights and benefits contained in, or expressly referred to in this Agreement, Employee hereby waives any and all rights and benefits Employee now has or might hereafter have acquired under the Plan, The Progressive Corporation Separation Allowance Plan, The 200___Gainsharing Program and any other compensation or bonus programs, employee benefit plans and fringe benefit programs maintained by Progressive or any of its affiliates by virtue of Employee’s employment with Progressive or the termination thereof.
8.	Employee acknowledges the forfeiture of any and all unvested non-qualified stock options (“NQSOs”) awarded to Employee under The Progressive Corporation 1989 Incentive Plan or The Progressive Corporation 1995 Incentive Plan (the “Incentive Plans”). Employee’s rights, if any, under The Progressive Corporation Executive Deferred Compensation Plan, The Progressive Pension Plan and The Incentive Plans (collectively, the “Programs”) shall be determined in accordance with the governing provisions of the Programs as in effect from time to time. For purposes of such Programs, Employee shall be considered to have terminated employment with Progressive on the Separation Date.
9.	In consideration of the above undertakings of Employer, Employee hereby releases Employer, Progressive and their respective affiliates, officers, directors, employees, agents, successors and assigns (collectively, the “Released Entities”), from any and all claims, liabilities, demands, actions, suits and causes of action, whether known or unknown, that Employee ever had or now has against any of the Released Entities, including but not limited to claims arising under the Age Discrimination in Employment Act, as amended, and other claims relating to Employee’s employment with Progressive and the termination of that employment, and claims under The Progressive Corporation Separation Allowance Plan (collectively “Claims”). [If Employee is a California resident, Employee acknowledges that he/she has read and understands California Civil Code Section 1542, which reads as follows:

“A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.”

	Employee hereby waives the provisions and protections of California Civil Code Section 1542 and agrees that the above release shall apply to all Claims that Employee ever had or now has against the Released Entities, regardless of whether Employee currently is aware of the Claims or suspects that they exist.]
10.	Employee agrees that Employee will maintain the confidentiality of confidential information which Employee has received by virtue of his/her

	employment with Progressive and will refrain from using such information or disclosing it to anyone other than Progressive or its employees. For purposes of this Agreement, confidential information is information which Progressive endeavors to keep confidential, including, without limitation, customer lists, employee lists, rate schedules, underwriting information, the terms of contracts and policies, marketing plans, program designs, trade secrets, proprietary information, and any such information provided by a third party to Progressive in confidence. Employee represents that promptly following his/her execution of this Agreement, Employee will return to Progressive any records in his/her possession containing confidential information of Progressive or records which are the property of Progressive.
11.	In the event of any actual or threatened breach by Employee of the provisions of Paragraphs 10, Progressive shall be entitled to an injunction (including an ex parte temporary restraining order) restraining Employee from violating these provisions. Progressive shall also be entitled to recover, as liquidated damages, the amount equal to fifty percent (50%) of the severance paid to Employee under this Agreement.
12.	All payments to be made by Employer under this Agreement are subject to applicable tax withholding, other legally required deductions and (except to the extent prohibited by law) amounts due Progressive for any reason.
13.	All capitalized terms used in this Agreement shall have the meanings given to them in the Plan, unless otherwise required clearly by the context.
14.	This Agreement, together with the Plan and the other documents referred to herein, constitute the entire agreement of the parties, superseding all prior oral or written representations, agreements and understandings relating to the subject matter of this Agreement. Any modifications of this Agreement must be in a writing signed by both parties in order to be effective. Employee may not assign this Agreement or any of his/her rights or obligations hereunder without Employer’s prior written consent. This Agreement is subject to the terms, provisions and limitations of the Plan in all respects.
15.	Employee has read and understands all of the terms of this Agreement and Employee has been encouraged to consult with an attorney. Employee acknowledges that he/she has been given a period of at least                      (___) days to review this Agreement with an attorney and individuals of his/her own choice and consider its effect, including Employee’s release of rights. Employee signs this Agreement in exchange for the consideration to be given to him/her, which Employee acknowledges is adequate and satisfactory. Neither Progressive nor its agents, representatives or employees have made any representations to Employee concerning the terms or effects of this Agreement other than those contained in this Agreement or the Plan.

IMPORTANT! BEFORE YOU SIGN THIS AGREEMENT YOU SHOULD CONSULT WITH AN ATTORNEY. ALSO, AFTER YOU HAVE SIGNED THIS AGREEMENT YOU HAVE SEVEN (7) DAYS WITHIN WHICH TO REVOKE IT FOR ANY REASON. YOU DO NOT NEED EMPLOYER’S CONSENT IN ORDER TO REVOKE THIS AGREEMENT, BUT YOU MUST GIVE WRITTEN NOTICE OF YOUR REVOCATION TO EMPLOYER WITHIN THE SEVEN (7) DAY REVOCATION PERIOD. THIS AGREEMENT WILL NOT BE EFFECTIVE OR ENFORCEABLE UNTIL THE EXPIRATION OF THE SEVEN (7) DAY REVOCATION PERIOD.

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date indicated above.

Witness	Employee
Witness	Employer
	Title:

EX-11

Exhibit No. 11

THE PROGRESSIVE CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(millions — except per share amounts)

	2006				2005				2004
			Per				Per				Per
Years Ended December 31,	Amount		Share		Amount		Share		Amount		Share
Basic:
Net income	$	1,647.5	$	2.13	$	1,393.9	$	1.77	$	1,648.7	$	1.94
Average shares outstanding		774.3				787.7				851.5
Diluted:
Net income	$	1,647.5	$	2.10	$	1,393.9	$	1.74	$	1,648.7	$	1.91
Average shares outstanding		774.3				787.7				851.5
Net effect of dilutive stock-based compensation		9.5				11.6				13.3
Total		783.8				799.3				864.8

All share and per share amounts have been adjusted for the May 18, 2006, 4-for-1 stock split.

EX-12

Exhibit No. 12

THE PROGRESSIVE CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(millions)
(unaudited)

	Years Ended December 31,
	2006			2005			2004			2003			2002
Income before income taxes	$	2,433.2		$	2,058.9		$	2,450.8		$	1,859.7		$	981.4
Fixed Charges:
Interest and amortization on indebtedness		79.7			83.9			84.7			97.0			75.1
Portion of rents representative of the interest factor		22.9			17.5			8.9			7.5			5.6
Total fixed charges		102.6			101.4			93.6			104.5			80.7
Interest capitalized, net of amortized interest		(1.6	)		(.7	)		(3.6	)		(1.2	)		(.1	)
Total income available for fixed charges	$	2,534.2		$	2,159.6		$	2,540.8		$	1,963.0		$	1,062.0
Ratio of earnings to fixed charges		24.7			21.3			27.1			18.8			13.2

EX-13

Appendix A

2006 Annual Report to Shareholders

APP.-A-1 THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income

				(millions–except per share amounts)
For the years ended December 31,	2006			2005			2004
Revenues
Net premiums earned	$	14,117.9		$	13,764.4		$	13,169.9
Investment income		647.8			536.7			484.4
Net realized gains (losses) on securities		(9.7	)		(37.9	)		79.3
Service revenues		30.4			40.2			48.5
Total revenues		14,786.4			14,303.4			13,782.1
Expenses
Losses and loss adjustment expenses		9,394.9			9,364.8			8,555.0
Policy acquisition costs		1,441.9			1,448.2			1,418.0
Other underwriting expenses		1,402.8			1,312.2			1,238.6
Investment expenses		11.9			12.1			13.9
Service expenses		24.4			24.6			25.0
Interest expense		77.3			82.6			80.8
Total expenses		12,353.2			12,244.5			11,331.3
Net Income
Income before income taxes		2,433.2			2,058.9			2,450.8
Provision for income taxes		785.7			665.0			802.1
Net income	$	1,647.5		$	1,393.9		$	1,648.7
Computation of Earnings Per Share
Basic:
Average shares outstanding		774.3			787.7			851.5
Per share	$	2.13		$	1.77		$	1.94
Diluted:
Average shares outstanding		774.3			787.7			851.5
Net effect of dilutive stock-based compensation		9.5			11.6			13.3
Total equivalent shares		783.8			799.3			864.8
Per share	$	2.10		$	1.74		$	1.91

All share and per share amounts were adjusted for the May 18, 2006, 4-for-1 stock split.

See notes to consolidated financial statements.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES APP.-A-2

Consolidated Balance Sheets

			(millions)
December 31,	2006		2005
Assets
Investments–Available-for-sale, at fair value:
Fixed maturities (amortized cost: $9,959.6 and $10,260.7)	$	9,958.9	$	10,221.9
Equity securities:
Preferred stocks (cost: $1,761.4 and $1,217.0)		1,781.0		1,220.3
Common equities (cost: $1,469.0 and $1,423.4)		2,368.1		2,058.9
Short-term investments (amortized cost: $581.0 and $773.5)		581.2		773.6
Total investments		14,689.2		14,274.7
Cash		5.6		5.6
Accrued investment income		134.4		133.1
Premiums receivable, net of allowance for doubtful accounts of $122.0 and $116.3		2,498.2		2,500.7
Reinsurance recoverables, including $72.4 and $58.5 on paid losses		433.8		405.7
Prepaid reinsurance premiums		89.5		103.7
Deferred acquisition costs		441.0		444.8
Income taxes		16.8		138.3
Property and equipment, net of accumulated depreciation of $557.0 and $562.0		973.4		758.7
Other assets		200.2		133.3
Total assets	$	19,482.1	$	18,898.6
Liabilities and Shareholders’ Equity
Unearned premiums	$	4,335.0	$	4,335.1
Loss and loss adjustment expense reserves		5,725.0		5,660.3
Accounts payable, accrued expenses and other liabilities		1,390.0		1,510.8
Debt1		1,185.5		1,284.9
Total liabilities		12,635.5		12,791.1
Shareholders’ equity:
Common Shares, $1.00 par value (authorized 900.0 and 600.0; issued 798.7 and 213.1, including treasury shares of 50.7 and 15.8)		748.0		197.3
Paid-in capital		847.4		848.2
Unamortized restricted stock 2		—		(62.7	)
Accumulated other comprehensive income:
Net unrealized gains on securities		596.8		390.1
Net unrealized gains on forecasted transactions		7.5		8.6
Retained earnings		4,646.9		4,726.0
Total shareholders’ equity		6,846.6		6,107.5
Total liabilities and shareholders’ equity	$	19,482.1	$	18,898.6

1	Includes current and non-current debt. See Note 4 – Debt for further discussion.
2	Reclassified pursuant to the adoption of SFAS 123(R); See Note 1 – Reporting and Accounting Policies, “Stock-Based Compensation,” for further discussion.
	See notes to consolidated financial statements.

APP.-A-3 THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders’ Equity

										(millions–except per share amounts)
For the years ended December 31,	2006						2005						2004
Retained Earnings
Balance, Beginning of year	$	4,726.0					$	3,812.9					$	3,729.8
Net income		1,647.5		$	1,647.5			1,393.9		$	1,393.9			1,648.7		$	1,648.7
Cash dividends on Common Shares ($.0325, $.0300 and $.0275 per share)		(25.0	)					(23.7	)					(23.3	)
Treasury shares purchased1,2		(1,111.6	)					(457.0	)					(1,542.4	)
Capitalization of stock split		(585.9	)					—						—
Other, net3		(4.1	)					(.1	)					.1
Balance, End of year	$	4,646.9					$	4,726.0					$	3,812.9
Accumulated Other Comprehensive Income (Loss), Net of Tax
Balance, Beginning of year	$	398.7					$	444.8					$	425.0
Changes in:
Net unrealized gains on securities					206.7						(45.0	)					16.9
Net unrealized gains on forecasted transactions					(1.1	)					(1.1	)					(1.0	)
Foreign currency translation adjustment					—						—						3.9
Other comprehensive income		205.6			205.6			(46.1	)		(46.1	)		19.8			19.8
Balance, End of year	$	604.3					$	398.7					$	444.8
Comprehensive Income				$	1,853.1					$	1,347.8					$	1,668.5
Common Shares, $1.00 Par Value Balance, Beginning of year	$	197.3					$	200.4					$	216.4
Stock options exercised		3.7						1.6						2.1
Treasury shares purchased1,2		(39.1	)					(5.2	)					(18.6	)
Restricted stock issued, net of forfeitures		.2						.5						.5
Capitalization of stock split		585.9						—						—
Balance, End of year	$	748.0					$	197.3					$	200.4
Paid-In Capital
Balance, Beginning of year	$	848.2					$	743.3					$	688.3
Stock options exercised		39.6						42.6						49.6
Tax benefits from exercise/vesting of stock-based compensation		38.8						41.2						44.3
Treasury shares purchased1,2		(63.8	)					(20.6	)					(67.5	)
Restricted stock issued, net of forfeitures		(.2	)					41.7						27.3
Amortization of stock-based compensation		27.8						—						—
SFAS 123(R) reclass 4		(51.5	)					—						—
Other3		8.5						—						1.3
Balance, End of year	$	847.4					$	848.2					$	743.3
Unamortized Restricted Stock
Balance, Beginning of year	$	(62.7	)				$	(46.0	)				$	(28.9	)
Restricted stock issued, net of forfeitures		—						(42.2	)					(40.6	)
Restricted stock market value adjustment		—						(8.2	)					(.3	)
Amortization of restricted stock		—						33.7						23.8
SFAS 123(R) reclass 4		62.7						—						—
Balance, End of year	$	—					$	(62.7	)				$	(46.0	)
Total Shareholders’ Equity	$	6,846.6					$	6,107.5					$	5,155.4

1	Progressive did not split its treasury shares in conjunction with the May 18, 2006, 4-for-1 stock split. In 2006, we repurchased 3,182,497 Common Shares prior to the stock split and 35,887,246 Common Shares subsequent to the stock split.
2	Includes 16.9 million Common Shares purchased pursuant to a “Dutch auction” tender offer in 2004; these shares were purchased at a price of $88 per share, on a pre-split basis, for a total cost of $1.5 billion.
3	Primarily reflects activity associated with our deferred compensation plans.
4	Upon adoption of SFAS 123(R), companies were required to eliminate any unearned compensation (i.e., contra-equity) accounts against the appropriate equity accounts. As a result, as of January 1, 2006, we were required to reclassify $62.7 million of “Unamortized restricted stock,” of which $51.5 million related to equity awards and $11.2 million related to liability awards.
	There are 20.0 million Serial Preferred Shares authorized; no such shares are issued or outstanding.
	There are 5.0 million Voting Preference Shares authorized; no such shares have been issued.
	See notes to consolidated financial statements.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES APP.-A-4

Consolidated Statements of Cash Flows

							(millions)
For the years ended December 31,	2006			2005			2004
Cash Flows From Operating Activities
Net income	$	1,647.5		$	1,393.9		$	1,648.7
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		103.4			92.4			99.4
Amortization of fixed maturities		225.6			189.6			168.9
Amortization of stock-based compensation		27.6			33.7			23.8
Net realized (gains) losses on securities		9.7			37.9			(79.3	)
Net loss on disposition of property and equipment		.9			—			—
Changes in:
Unearned premiums		(.1	)		227.1			213.3
Loss and loss adjustment expense reserves		64.7			374.7			709.3
Accounts payable, accrued expenses and other liabilities		7.1			49.5			70.2
Prepaid reinsurance premiums		14.2			16.1			(5.1	)
Reinsurance recoverables		(28.1	)		(24.1	)		(110.3	)
Premiums receivable		2.5			(213.5	)		(207.6	)
Deferred acquisition costs		3.8			(12.6	)		(19.9	)
Income taxes		10.1			(140.0	)		98.5
Tax benefits from exercise/vesting of stock-based compensation1		—			41.2			44.3
Other, net		(64.3	)		(71.9	)		8.3
Net cash provided by operating activities		2,024.6			1,994.0			2,662.5
Cash Flows From Investing Activities
Purchases:
Fixed maturities		(6,294.9	)		(9,154.4	)		(6,686.3	)
Equity securities		(1,131.6	)		(852.9	)		(678.3	)
Short-term investments – auction rate securities		(2,999.3	)		(7,935.3	)		(6,890.1	)
Sales:
Fixed maturities		5,668.2			7,068.6			5,885.7
Equity securities		323.1			152.3			876.3
Short-term investments – auction rate securities		3,215.5			8,053.4			6,552.4
Maturities, paydowns, calls and other:
Fixed maturities		686.1			572.6			639.7
Equity securities		223.5			114.4			78.2
Net sales (purchases) of short-term investments – other		(22.3	)		491.8			(390.9	)
Net unsettled security transactions		(116.6	)		126.6			(43.2	)
Purchases of property and equipment		(334.3	)		(219.3	)		(192.0	)
Sale of property and equipment		15.4			36.1			—
Net cash used in investing activities		(767.2	)		(1,546.1	)		(848.5	)
Cash Flows From Financing Activities
Proceeds from exercise of stock options		43.3			44.2			51.7
Tax benefits from exercise/vesting of stock-based compensation1		38.8			—			—
Payments of debt		(100.0	)		—			(206.0	)
Dividends paid to shareholders		(25.0	)		(23.7	)		(23.3	)
Acquisition of treasury shares		(1,214.5	)		(482.8	)		(1,628.5	)
Net cash used in financing activities		(1,257.4	)		(462.3	)		(1,806.1	)
Increase (decrease) in cash		—			(14.4	)		7.9
Cash, Beginning of year		5.6			20.0			12.1
Cash, End of year	$	5.6		$	5.6		$	20.0

1	Reclassified pursuant to the adoption of SFAS 123(R).
	See notes to consolidated financial statements.

APP.-A-5 THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2006, 2005 and 2004

1) Reporting and Accounting Policies

Nature of Operations The Progressive Corporation, an insurance holding company formed in 1965, owned 67 subsidiaries and had 1 mutual insurance company affiliate as of December 31, 2006. Our insurance subsidiaries provide personal and commercial automobile insurance and other specialty property-casualty insurance and related services throughout the United States. Our Personal Lines segment writes insurance for private passenger automobiles and recreational vehicles through both an independent insurance agency channel and a direct channel. Our Commercial Auto segment writes primary liability and physical damage insurance for automobiles and trucks owned by small businesses through both the independent agency and direct channels.

Basis of Consolidation and Reporting The accompanying consolidated financial statements include the accounts of The Progressive Corporation, its subsidiaries and affiliate. All of the subsidiaries and the affiliate are wholly owned or controlled. All intercompany accounts and transactions are eliminated in consolidation.

Estimates We are required to make estimates and assumptions when preparing our financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States of America (GAAP). As estimates develop into fact (e.g., losses are paid), results may, and will likely, differ from those estimates.

Investments Progressive’s fixed-maturity, equity securities and short-term investments are accounted for on an available-for-sale basis.

     Fixed-maturity securities include debt securities and mandatory redeemable preferred stocks, which may have fixed or variable principal payment schedules, may be held for indefinite periods of time, and may be used as a part of our asset/liability strategy or sold in response to changes in interest rates, anticipated prepayments, risk/reward characteristics, liquidity needs or other economic factors. These securities are carried at fair value with the corresponding unrealized gains (losses), net of deferred income taxes, reported in accumulated other comprehensive income. Fair values are obtained from a recognized pricing service or other quoted sources. The asset-backed portfolio is accounted for under the retrospective method; prepayment assumptions are based on market expectations. The prospective method is used for interest-only and non-investment-grade asset-backed securities as required by current accounting regulations.

     Equity securities include common stocks, nonredeemable preferred stocks and other risk investments and are reported at quoted fair values. Changes in the fair values of these securities, net of deferred income taxes, are reflected as unrealized gains (losses) in accumulated other comprehensive income. Changes in value of foreign equities due to foreign currency exchange rates are limited by foreign currency hedges and would be recognized in income in the current period. We held no foreign equities or foreign currency hedges during 2006 or 2005.

     Short-term investments include auction rate securities (i.e., municipal bonds and preferred stocks). Due to the nature of auction rate securities, these securities are classified as short-term based upon their expected auction date (generally 7-49 days) rather than on their contractual obligation (which are greater than one year at original issuance). In addition to auction rate securities, short-term investments include Eurodollar deposits, commercial paper and other securities expected to mature within one year. Changes in fair values of these securities, net of deferred income taxes, are reflected as unrealized gains (losses) in accumulated other comprehensive income.

     We did not hold any trading securities at December 31, 2006 or 2005. Trading securities are securities bought principally for the purpose of sale in the near term. To the extent we have trading securities, changes in fair value would be recognized in income in the current period. Derivative instruments which may be used for trading purposes or classified as trading derivatives due to the characteristics of the transaction are discussed below.

     Derivative instruments may include futures, options, forward positions, foreign currency forwards, interest rate swap agreements and credit default swaps and may be used in the portfolio for risk management or trading purposes or to hedge the exposure to:

• Changes in fair value of an asset or liability (fair value hedge);

• Foreign currency of an investment in a foreign operation (foreign currency hedge); or

• Variable cash flows of a forecasted transaction (cash flow hedge).

We had no derivative instruments held or issued for risk management purposes at December 31, 2006 or 2005. To the extent we had derivatives held or issued for risk management purposes, these derivative instruments would be recognized as either assets or liabilities and measured at fair value with changes in fair value recognized in income in the period of change.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES APP.-A-6

     At December 31, 2006, we held one credit default swap, classified as a trading derivative, compared to three at December 31, 2005. Changes in the fair value of the trading derivatives are reported as a component of net realized gains (losses) on securities during the current period.

     At December 31, 2006 and 2005, we had no fair value, foreign currency or cash flow hedges. To the extent we hold fair value hedges, changes in the hedge, along with the hedged items, would be recognized in income in the period of change while the hedge was in effect. Gains and losses on foreign currency hedges would offset the foreign exchange gains and losses on the foreign investments. Changes in fair value of cash flow hedges would be reported as a component of accumulated other comprehensive income and subsequently amortized into earnings over the life of the hedged transaction. Gains and losses on hedges on forecasted transactions are amortized over the life of the hedged item (see Note 4 – Debt). Hedges on forecasted transactions that no longer qualify for hedge accounting due to lack of correlation would be considered by us as derivatives used for risk management purposes.

     Derivatives designated as hedges would also be evaluated on established criteria to determine the effectiveness of their correlation to, and ability to reduce risk of, specific securities or transactions; effectiveness would be reassessed regularly. If a fair value hedge becomes ineffective, the derivative instrument would continue to be adjusted through income while the adjustment in the change in value of the hedged item would no longer be recognized in income during the current period, but rather would be reflected as a change in unrealized gains (losses) as part of accumulated other comprehensive income within shareholders’ equity.

     For all derivative positions, net cash requirements are limited to changes in fair values, which may vary based upon changes in interest rates, currency exchange rates and other factors. Exposure to credit risk is limited to the carrying value; collateral may be required to limit credit risk.

     Investment securities are exposed to various risks such as interest rate, market and credit risk. Fair values of securities fluctuate based on the magnitude of changing market conditions; significant changes in market conditions could materially affect portfolio value in the near term. We continually monitor our portfolio for price changes, which might indicate potential impairments, and perform detailed reviews of securities with unrealized losses based on predetermined criteria. In such cases, changes in fair value are evaluated to determine the extent to which such changes are attributable to (i) fundamental factors specific to the issuer, such as financial conditions, business prospects or other factors, or (ii) market-related factors, such as interest rates or equity market declines. When a security in our investment portfolio has an unrealized loss in fair value that is deemed to be other than temporary, we reduce the book value of such security to its current fair value, recognizing the decline as a realized loss in the income statement. Any future changes in fair value, either increases or decreases, are reflected as changes in unrealized gains (losses) as part of accumulated other comprehensive income within shareholders’ equity.

     Realized gains (losses) on securities are computed based on the first-in first-out method and include write-downs on available-for-sale securities considered to have other-than-temporary declines in fair value.

Property and Equipment Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is provided over the estimated useful lives of the assets using accelerated methods for computer equipment and the straight-line method for all other fixed assets. The useful lives range from 3 to 4 years for computer equipment, 10 to 40 years for buildings and improvements, and 3 to 10 years for all other property and equipment. Property and equipment include capitalized software developed or acquired for internal use. Land and buildings comprised 80% and 77% of total property and equipment at December 31, 2006 and 2005, respectively.

     Total interest capitalized was $2.4 million, $1.3 million and $3.9 million in 2006, 2005 and 2004, respectively, relating to construction projects and capitalized computer software costs.

Insurance Premiums and Receivables Insurance premiums written are earned into income on a pro rata basis over the period of risk, based on a daily earnings convention. Accordingly, unearned premiums represent the portion of premiums written that is applicable to the unexpired risk. We provide insurance and related services to individuals and small commercial accounts throughout the United States, and offer a variety of payment plans. Generally, premiums are collected prior to providing risk coverage, minimizing our exposure to credit risk. We perform a policy level evaluation to determine the extent the premiums receivable balance exceeds the unearned premiums balance. We then age this exposure to establish an allowance for doubtful accounts based on prior experience.

Income Taxes The income tax provision is calculated under the balance sheet approach. Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax bases of assets and liabilities at the enacted tax rates. The principal assets and liabilities giving rise to such differences are net unrealized gains (losses) on securities, loss reserves, unearned premiums reserves, deferred acquisition costs and non-deductible accruals. We review our deferred tax assets for recoverability. At December 31, 2006, we were able to demonstrate that the benefit of our deferred tax assets was fully realizable and, therefore, no valuation allowance was recorded.

APP.-A-7 THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

Loss and Loss Adjustment Expense Reserves Loss reserves represent the estimated liability on claims reported to us, plus reserves for losses incurred but not recorded (IBNR). These estimates are reported net of amounts recoverable from salvage and subrogation. Loss adjustment expense reserves represent the estimated expenses required to settle these claims and losses. The methods of making estimates and establishing these reserves are reviewed regularly, and resulting adjustments are reflected in income currently. Such loss and loss adjustment expense reserves are susceptible to change in the near term.

Reinsurance Our reinsurance transactions primarily include premiums written under state-mandated involuntary plans for commercial vehicles (Commercial Auto Insurance Procedures/Plans–“CAIP”), for which we retain no loss indemnity risk (see Note 6 – Reinsurance for further discussion). In addition, we cede auto premiums to state-provided reinsurance facilities. We also cede a portion of the premiums in our non-auto programs to limit our exposure in those particular markets. Prepaid reinsurance premiums are earned on a pro rata basis over the period of risk, based on a daily earnings convention, which is consistent with premiums written. Our primary line of business, auto insurance, is written at relatively low limits of liability; as such, we do not believe that we need to mitigate this risk through voluntary reinsurance.

Deferred Acquisition Costs Deferred acquisition costs include commissions, premium taxes and other variable underwriting and direct sales costs incurred in connection with writing business. These costs are deferred and amortized over the policy period in which the related premiums are earned. We consider anticipated investment income in determining the recoverability of these costs. Management believes that these costs will be fully recoverable in the near term. We do not defer any direct-response advertising costs.

Guaranty Fund Assessments We are subject to state guaranty fund assessments, which provide for the payment of covered claims or other insurance obligations of insurance companies deemed insolvent. These assessments are accrued after a formal determination of insolvency has occurred, and we have written the premiums on which the assessments will be based.

Service Revenues and Expenses Our service businesses provide insurance-related services. Service revenues consist primarily of fees generated from processing business for involuntary CAIP plans and are earned on a pro rata basis over the term of the related policies. Service expenses include acquisition expenses for the involuntary plans, which are deferred and amortized over the period in which the related revenues are earned, and costs associated with our other service products.

Stock-Based Compensation As of January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards 123 (revised 2004), “Share-Based Payment” (SFAS 123(R)), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors.

     We adopted SFAS 123(R) using the modified prospective method as of January 1, 2006. As a result, our consolidated financial statements for the year ended December 31, 2006, reflect the effect of SFAS 123(R), including the reclassification of any unamortized restricted stock (i.e., unearned compensation) against paid-in capital for restricted stock awards accounted for as “equity awards” and against other liabilities for the restricted stock awards accounted for as “liability awards” (i.e., 2003 and 2004 restricted stock awards deferred pursuant to our deferred compensation plans). In accordance with the modified prospective transition method, our consolidated financial statements for prior periods have not been restated to reflect, and do not include, the effect of SFAS 123(R).

     Pursuant to the modified prospective application, we are required to expense the fair value at the grant date of our unvested outstanding stock options. No stock options have been granted after December 31, 2002. We will not incur any additional expense relating to currently outstanding stock options in years subsequent to 2006, since the final vesting date of stock options previously granted was January 1, 2007. Beginning in 2003, we began issuing restricted stock awards as our form of equity compensation to key members of management and non-employee directors in lieu of stock options; our current equity compensation program does not contemplate the issuance of stock options. Compensation expense for restricted stock awards is recognized over the respective vesting periods. The expense for restricted stock is not representative of the effect on net income for future periods due to the phase in of additional awards with three, four and five year vesting periods. In 2007, the expense will be representative of the expense in future years.

     For the year ended December 31, 2006, the pretax expense of our stock-based compensation was $27.6 million (tax benefit of $9.7 million), of which $1.3 million related to our unvested outstanding stock options. The following table shows the effects on net income and earnings per share for prior periods had the fair value based method been applied to all outstanding and unvested stock option awards for the periods presented. We used the modified Black-Scholes pricing model to calculate the fair value of the options awarded as of the date of grant.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES APP.-A-8

(millions, except per share amounts)	2005			2004
Net income, as reported	$	1,393.9		$	1,648.7
Deduct: Total stock-based employee compensation expense determined under the fair value based method for all stock option awards, net of related tax effects		(2.6	)		(6.3	)
Net income, pro forma	$	1,391.3		$	1,642.4
Earnings per share
Basic – as reported	$	1.77		$	1.94
Basic – pro forma		1.77			1.93
Diluted – as reported	$	1.74		$	1.91
Diluted – pro forma		1.74			1.91

In addition, in conjunction with the Financial Accounting Standards Board (FASB) Staff Position No. FAS 123(R)-3, “Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards,” we elected to adopt the alternative transition method for calculating the tax effects of stock-based compensation pursuant to SFAS 123(R). The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool related to the tax effects of employee stock-based compensation, and to determine the subsequent effect on the paid-in capital pool and the consolidated statements of cash flows of the tax effects of employee stock-based compensation awards that were outstanding upon the adoption of SFAS 123(R).

     As highlighted above, the adoption of SFAS 123(R) had minimal effect on our financial results. In 2006, under SFAS 123(R), we began to record an estimate for expected forfeitures of restricted stock based on our historical forfeiture rates. Prior to adoption, we accounted for forfeitures as they occurred, as permitted under accounting standards then in effect. In addition, we shortened the vesting periods of certain stock-based awards based on the “qualified retirement” provisions in our incentive compensation plans, under which (among other provisions) the vesting of 50% of outstanding time-based restricted stock awards will accelerate upon retirement if the participant is 55 years of age or older and satisfies certain years-of-service requirements. The cumulative effect of adopting these changes was not material to our financial condition, cash flows or results of operations for the year ended December 31, 2006.

Earnings Per Share Basic earnings per share are computed using the weighted average number of Common Shares outstanding, excluding both time-based and performance-based unvested restricted stock awards. Diluted earnings per share include common stock equivalents assumed outstanding during the period. Our common stock equivalents include stock options and time-based restricted stock awards accounted for as equity awards. In determining the denominator for our diluted earnings per share, we include the impact of pro forma deferred tax assets pursuant to the alternative transition method under SFAS 123(R) for purposes of calculating assumed proceeds under the treasury stock method.

Supplemental Cash Flow Information Cash includes only bank demand deposits. We paid income taxes of $739.0 million, $767.0 million and $709.0 million in 2006, 2005 and 2004, respectively. Total interest paid was $81.3 million during 2006, $85.0 million during 2005 and $91.7 million during 2004. Non-cash activity includes the liability for deferred restricted stock compensation (prior to the adoption of SFAS 123(R)) and the changes in net unrealized gains (losses) on investment securities.

     Progressive effected a 4-for-1 stock split in the form of a stock dividend to shareholders on May 18, 2006. We reflected the issuance of the additional Common Shares by transferring $585.9 million from retained earnings to the common stock account. All share, per share and equivalent share amounts and stock prices were adjusted to give effect to the split. Treasury shares were not split.

New Accounting Standards In July 2006, FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” was issued, which provides guidance for recognizing and measuring the financial statement impact of tax positions taken or expected to be taken in a tax return. This interpretation was effective beginning January 1, 2007. Progressive analyzed its tax positions in accordance with this interpretation and determined that it did not result in any changes to our reserve for uncertain tax positions. As a result, no adjustment to January 1, 2007 retained earnings was required.

     In February 2006, the FASB issued SFAS 155, “Accounting for Certain Hybrid Financial Instruments,” which amends portions of SFAS 133, “Accounting for Derivative Instruments and Hedging Activity,” and SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS 155 provides guidance for accounting for certain securities with embedded derivative instruments and was effective for financial instruments issued or acquired after an entity’s first fiscal year that begins after September 15, 2006 (January 1, 2007 for calendar-year companies). Since this statement is applied on a prospective basis, it did not impact our historical financial statements. To the extent we acquire hybrid financial instruments with embedded derivatives after January 1, 2007, the change in fair value of such securities will be reflected in our income statement.

APP.-A-9 THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

     In September 2006, the FASB issued SFAS 157, “Fair Value Measurements,” and SFAS 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” SFAS 157 does not require any new fair value measurements, but provides consistency and comparability in fair value measurements and expands disclosure about fair value measurements. This statement is effective for fiscal years beginning after November 15, 2007 (January 1, 2008 for calendar-year companies) and will not have an effect on our financial condition, cash flows or results of operations. We also believe that SFAS 157 will not require any significant changes in our disclosure of fair value for our investment portfolio.

     The recognition and disclosure provisions of SFAS 158, which require companies to recognize the over- or under-funded status of defined benefit postretirement plans as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income, were effective at December 31, 2006 for calendar-year companies. Progressive does not have a defined benefit pension plan, but provides postretirement health and life benefits to all employees who met age and service requirements at December 31, 1988. Since there are only approximately 100 members in this group and the entire under-funded obligation is currently recognized in our consolidated balance sheet, this standard does not have a material impact on our financial condition, cash flows or results of operations.

     In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 108, “Quantifying Financial Misstatements.” SAB 108 provides guidance for companies to quantify financial statement misstatements based on the effect of the misstatement on each of the company’s financial statements, including the consideration of the effects of the carryover and reversal of prior-year misstatements. The cumulative effect of applying SAB 108 may be recognized as an adjustment to retained earnings as of the beginning of the first fiscal year after November 15, 2006 (January 1, 2007 for calendar-year companies). Progressive has determined that SAB 108 did not have a material impact on our financial condition, cash flows or results of operations.

     Excluding the new standards discussed above, the other accounting standards recently issued by the FASB, Statements of Position and Practice Bulletins issued by the American Institute of Certified Public Accountants and consensus positions of the Emerging Issues Task Force are currently not applicable to us and, therefore, would have no effect on our financial condition, cash flows or results of operations.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES APP.-A-10

2) Investments

The composition of the investment portfolio at December 31 was:

			Gross		Gross					% of
			Unrealized		Unrealized			Fair		Total
(millions)	Cost		Gains		Losses			Value		Portfolio
2006
Fixed maturities:
U.S. government obligations	$	3,195.1	$	23.3	$	(15.0	)	$	3,203.4		21.8	%
State and local government obligations		3,124.2		18.4		(22.9	)		3,119.7		21.2
Foreign government obligations		29.8		.1		(.1	)		29.8		.2
Corporate and U.S. agency debt securities		1,125.0		5.6		(13.8	)		1,116.8		7.6
Asset-backed securities		2,387.4		24.0		(21.3	)		2,390.1		16.3
Redeemable preferred stock		98.1		3.4		(2.4	)		99.1		.7
Total fixed maturities		9,959.6		74.8		(75.5	)		9,958.9		67.8
Short-term investments:
Auction rate municipal obligations		99.4		—		—			99.4		.7
Auction rate preferred stocks		69.2		.2		—			69.4		.5
Other short-term investments		412.4		—		—			412.4		2.8
Total short-term investments		581.0		.2		—			581.2		4.0
Preferred stocks		1,761.4		31.5		(11.9	)		1,781.0		12.1
Common equities		1,469.0		904.0		(4.9	)		2,368.1		16.1
	$	13,771.0	$	1,010.5	$	(92.3	)	$	14,689.2		100.0	%
2005
Fixed maturities:
U.S. government obligations	$	2,249.0	$	7.3	$	(11.0	)	$	2,245.3		15.7	%
State and local government obligations		3,637.7		29.6		(31.4	)		3,635.9		25.5
Foreign government obligations		30.3		.2		(.2	)		30.3		.2
Corporate and U.S. agency debt securities		1,837.6		6.7		(31.7	)		1,812.6		12.7
Asset-backed securities		2,386.6		17.9		(28.5	)		2,376.0		16.6
Redeemable preferred stock		119.5		3.1		(.8	)		121.8		.9
Total fixed maturities		10,260.7		64.8		(103.6	)		10,221.9		71.6
Short-term investments:
Auction rate municipal obligations		280.2		—		—			280.2		2.0
Auction rate preferred stocks		105.0		.2		(.1	)		105.1		.7
Other short-term investments		388.3		—		—			388.3		2.7
Total short-term investments		773.5		.2		(.1	)		773.6		5.4
Preferred stocks		1,217.0		17.0		(13.7	)		1,220.3		8.6
Common equities		1,423.4		650.3		(14.8	)		2,058.9		14.4
	$	13,674.6	$	732.3	$	(132.2	)	$	14,274.7		100.0	%

See Note 10 – Other Comprehensive Income for changes in the net unrealized gains (losses) during the period.

At December 31, 2006, bonds in the principal amount of $130.5 million were on deposit to meet state insurance regulatory and/or rating agency requirements. We did not have any securities of any one issuer with an aggregate cost or fair value exceeding ten percent of total shareholders’ equity at December 31, 2006 or 2005. At December 31, 2006, we had fixed-maturity securities with a fair value of $1.1 million that were non-income producing during the preceding 12 months.

APP.-A-11 THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

The components of net investment income for the years ended December 31 were:

(millions)	2006			2005			2004
Fixed maturities	$	481.7		$	399.0		$	374.6
Preferred stocks		84.4			61.5			49.3
Common equities		43.1			37.2			41.2
Short-term investments:
Auction rate municipal obligations		1.8			5.4			1.8
Auction rate preferred stocks		5.8			6.8			4.2
Other short-term investments		31.0			26.8			13.3
Investment income		647.8			536.7			484.4
Investment expenses		(11.9	)		(12.1	)		(13.9	)
Net investment income	$	635.9		$	524.6		$	470.5

The components of net realized gains (losses) for the years ended December 31 were:

(millions)	2006			2005			2004
Gross realized gains:
Fixed maturities	$	47.9		$	47.4		$	105.5
Preferred stocks		.6			—			7.9
Common equities		24.7			15.6			56.1
Short-term investments:
Auction rate municipal obligations		.1			.1			.1
		73.3			63.1			169.6
Gross realized losses:
Fixed maturities		(62.4	)		(76.2	)		(23.8	)
Preferred stocks		(11.1	)		(2.3	)		(9.7	)
Common equities		(9.2	)		(22.5	)		(56.6	)
Short-term investments:
Auction rate municipal obligations		(.1	)		—			—
Auction rate preferred stocks		(.2	)		—			(.2	)
		(83.0	)		(101.0	)		(90.3	)
Net realized gains (losses) on securities:
Fixed maturities		(14.5	)		(28.8	)		81.7
Preferred stocks		(10.5	)		(2.3	)		(1.8	)
Common equities		15.5			(6.9	)		(.5	)
Short-term investments:
Auction rate municipal obligations		—			.1			.1
Auction rate preferred stocks		(.2	)		—			(.2	)
	$	(9.7	)	$	(37.9	)	$	79.3
Per share (diluted basis)	$	(.01	)	$	(.03	)	$	.06

For 2006, 2005 and 2004, net realized gains (losses) on securities include $1.9 million, $16.4 million and $7.8 million, respectively, of write-downs in securities determined to have had an other-than-temporary decline in fair value for securities held at December 31.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES APP.-A-12

The components of gross unrealized losses at December 31, 2006 and 2005 were:

			Unrealized Losses
	Total
	Fair					Less than			12 months
(millions)	Value		Total			12 Months			or greater1
2006
Fixed maturities	$	6,128.4	$	(75.5	)	$	(6.7	)	$	(68.8	)
Preferred stocks		494.3		(11.9	)		(.4	)		(11.5	)
Common equities		97.2		(4.9	)		(4.3	)		(.6	)
Short-term investments		—		—			—			—
	$	6,719.9	$	(92.3	)	$	(11.4	)	$	(80.9	)
2005
Fixed maturities	$	6,395.1	$	(103.6	)	$	(44.2	)	$	(59.4	)
Preferred stocks		579.8		(13.7	)		(6.1	)		(7.6	)
Common equities		198.3		(14.8	)		(14.6	)		(.2	)
Short-term investments		50.0		(.1	)		(.1	)		—
	$	7,223.2	$	(132.2	)	$	(65.0	)	$	(67.2	)

¹ The fair value for securities in an unrealized loss position for 12 months or greater was $4,832.2 million at December 31, 2006 and $2,610.0 million at December 31, 2005.

None of the securities presented in the table above was deemed to have any fundamental issues, and approximately 96% of these securities had a decline in fair value that is less than 15% from its original value, which would lead us to believe that none of these securities was other-than-temporarily impaired. We have the intent and ability to hold the fixed-maturity securities and preferred stocks, and will do so, as long as the securities continue to remain consistent with our investment strategy. We may retain the common stocks to maintain correlation to the Russell 1000 Index as long as the portfolio and index correlation remain similar. If our strategy were to change and these securities were determined to be other-than-temporarily impaired, we would recognize a write-down in accordance with our stated policy.

     At December 31, 2006 and 2005, we did not hold any trading securities. We did not have any net realized gains (losses) on trading securities for the years ended December 31, 2006, 2005 and 2004.

     Derivative instruments may also be used for trading purposes or classified as trading derivatives due to characteristics of the transaction. During 2006, we closed our credit default protection derivatives, which were held on several issuers and matched with Treasury securities that had equivalent principal and maturities to replicate cash bond positions. The combined positions generated a net gain (loss) of $9.9 million for 2006, compared to $(7.6) million and $(1.4) million for 2005 and 2004, respectively. The amount and results of the derivative and Treasury positions are immaterial to our financial condition, cash flows and results of operations and are reported as part of the available-for-sale portfolio, with the net gain reported as a component of net realized gains (losses) on securities.

     In 2006, we purchased default protection, in the form of a credit default swap, on a standard tranche of a commonly traded index of 125 investment-grade credits, with a notional amount of $40 million. This derivative will benefit from an increase in the market price of default risk. The amount and results of the derivative position are immaterial to our financial condition, cash flows and results of operations and are reported as part of the available-for-sale portfolio, with the net gain ($.1 million in 2006) reported as a component of net realized gains (losses) on securities and the expense ($.1 million in 2006) reported as a component of net investment income.

APP.-A-13 THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

The composition of fixed maturities by maturity at December 31, 2006, was:

			Fair
(millions)	Cost		Value
Less than one year	$	480.4	$	479.6
One to five years		6,722.6		6,703.6
Five to ten years		2,678.6		2,696.9
Ten years or greater		78.0		78.8
		9,959.6		9,958.9
Auction rate municipal obligations		99.4		99.4
	$	10,059.0	$	10,058.3

Asset-backed securities are classified in the maturity distribution table based upon their projected cash flows. All other securities which do not have a single maturity date are reported at expected average maturity. Contractual maturities may differ from expected maturities because the issuers of the securities may have the right to call or prepay obligations.

     Auction rate municipal obligations generally have contractual maturities of 10 years or more at original issuance. The securities have interest reset periods of up to 7 days, which allow for early liquidation.

3) Income Taxes

The components of our income tax provision were as follows:

(millions)	2006			2005			2004
Current tax provision	$	798.6		$	696.7		$	794.0
Deferred tax expense (benefit)		(12.9	)		(31.7	)		8.1
Total income tax provision	$	785.7		$	665.0		$	802.1

The provision for income taxes in the accompanying consolidated statements of income differed from the statutory rate as follows:

(millions)	2006					2005					2004
Income before income taxes	$	2,433.2				$	2,058.9				$	2,450.8
Tax at statutory rate	$	851.6		35	%	$	720.6		35	%	$	857.8		35	%
Tax effect of:
Exempt interest income		(35.9	)	(2	)		(34.8	)	(2	)		(29.8	)	(1	)
Dividends received deduction		(27.2	)	(1	)		(22.2	)	(1	)		(19.1	)	(1	)
Other items, net		(2.8	)	—			1.4		—			(6.8	)	—
Total income tax provision	$	785.7		32	%	$	665.0		32	%	$	802.1		33	%

At December 31, 2006, we have a capital loss carryforward of $10.4 million, which will expire on December 31, 2011.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES APP.-A-14

Deferred income taxes reflect the effect for financial statement reporting purposes of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities. At December 31, 2006 and 2005, the components of the net deferred tax assets were as follows:

(millions)	2006			2005
Deferred tax assets:
Unearned premiums reserve	$	300.7		$	299.5
Non-deductible accruals		145.8			129.0
Loss reserves		120.6			128.8
Write-downs on securities		13.9			16.4
Other		5.2			4.6
Deferred tax liabilities:
Deferred acquisition costs		(154.4	)		(155.7	)
Net unrealized gains on securities		(321.4	)		(210.0	)
Hedges on forecasted transactions		(4.0	)		(4.6	)
Depreciable assets		(52.4	)		(52.0	)
Other		(15.0	)		(19.1	)
Net deferred tax assets		39.0			136.9
Net income taxes (payable) recoverable		(22.2	)		1.4
Income taxes	$	16.8		$	138.3

4) Debt

Debt at December 31 consisted of:

	2006				2005
	Carrying		Fair		Carrying		Fair
(millions)	Value		Value		Value		Value
7.30% Notes due 2006 (issued: $100.0, May 1996)	$	—	$	—	$	100.0	$	101.0
6.375% Senior Notes due 2012 (issued: $350.0, December 2001)		348.3		365.4		348.0		372.7
7% Notes due 2013 (issued: $150.0, October 1993)		149.1		163.2		149.0		166.6
65/8% Senior Notes due 2029 (issued: $300.0, March 1999)		294.3		325.2		294.2		331.5
6.25% Senior Notes due 2032 (issued: $400.0, November 2002)		393.8		414.0		393.7		424.1
	$	1,185.5	$	1,267.8	$	1,284.9	$	1,395.9

Debt includes amounts we have borrowed and contributed to the capital of our insurance subsidiaries or borrowed for other business purposes. Fair values are obtained from publicly quoted sources. Interest on all debt is payable semiannually and all principal is due at maturity. There are no restrictive financial covenants or credit rating triggers.

     The 7.30% Notes were repaid during 2006, at their scheduled maturity. The 6.375% Senior Notes, the 6⁵/₈% Senior Notes and the 6.25% Senior Notes (collectively, “Senior Notes”) may be redeemed in whole or in part at any time, at the option of Progressive, subject to a “make whole” provision. The 7% Notes are noncallable.

     Prior to issuance of the Senior Notes, we entered into forecasted debt issuance hedges against possible rises in interest rates. Upon issuance of the applicable debt securities, the hedges were closed. We recognized, as part of accumulated other comprehensive income, unrealized gains (losses) of $18.4 million, $(4.2) million and $5.1 million associated with the 6.375% Senior Notes, the 6⁵/₈% Senior Notes and the 6.25% Senior Notes, respectively. The gains (losses) on these hedges are recognized as adjustments to interest expense and are amortized over the life of the related debt issuances.

     In December 2005, we entered into an uncommitted line of credit with National City Bank in the principal amount of $125 million, replacing a prior credit facility with National City Bank for $100 million, which had the same material terms. No commitment fees are required to be paid. There are no rating triggers under this line of credit. We had no borrowings under these arrangements at December 31, 2006 or 2005. Interest on amounts borrowed would generally accrue at the one month London interbank offered rate (LIBOR) plus .375%.

     Aggregate principal payments on debt outstanding at December 31, 2006, are $0 for each of the next 5 years and $1.2 billion thereafter.

APP.-A-15 THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

5) Loss and Loss Adjustment Expense Reserves

Activity in the loss and loss adjustment expense reserves is summarized as follows:

(millions)	2006			2005			2004
Balance at January 1	$	5,660.3		$	5,285.6		$	4,576.3
Less reinsurance recoverables on unpaid losses		347.2			337.1			229.9
Net balance at January 1		5,313.1			4,948.5			4,346.4
Incurred related to:
Current year		9,641.8			9,720.7			8,664.1
Prior years		(246.9	)		(355.9	)		(109.1	)
Total incurred		9,394.9			9,364.8			8,555.0
Paid related to:
Current year		6,682.3			6,644.7			5,719.2
Prior years		2,662.1			2,355.5			2,233.7
Total paid		9,344.4			9,000.2			7,952.9
Net balance at December 31		5,363.6			5,313.1			4,948.5
Plus reinsurance recoverables on unpaid losses		361.4			347.2			337.1
Balance at December 31	$	5,725.0		$	5,660.3		$	5,285.6

Our objective is to establish case and IBNR reserves that are adequate to cover all loss costs, while sustaining minimal variation from the date that the reserves are initially established until losses are fully developed. Our reserves developed favorably in 2006, 2005 and 2004. Total development consists of net changes made by our actuarial department on prior accident year reserves, based on regularly scheduled reviews, claims settling for more or less than reserved, emergence of unrecorded claims at rates different than reserved and changes in reserve estimates by claim representatives. The continued recognition of more modest increases in loss severity for prior accident years than had been previously estimated, contributed to our favorable prior year reserve development.

     Because we are primarily an insurer of motor vehicles, we have limited exposure to environmental, asbestos and general liability claims. We have established reserves for such exposures, in amounts that we believe to be adequate based on information currently known. These claims will not have a material effect on our liquidity, financial condition, cash flows or results of operations.

     We write personal and commercial auto insurance in the coastal states, which could be exposed to hurricanes or other natural catastrophes. Although the occurrence of a major catastrophe could have a significant effect on our monthly or quarterly results, we believe that, based on historical performance, such an event would not be so material as to disrupt the overall normal operations of Progressive. We are unable to predict the frequency or severity of any such events that may occur in the near term or thereafter.

6) Reinsurance

Reinsurance contracts do not relieve us from our obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to Progressive. We evaluate the financial condition of our reinsurers and monitor concentrations of credit risk to minimize our exposure to significant losses from reinsurer insolvencies.

The effect of reinsurance on premiums written and earned for the years ended December 31 was as follows:

	2006						2005						2004
(millions)	Written			Earned			Written			Earned			Written			Earned
Direct premiums	$	14,386.2		$	14,386.3		$	14,293.4		$	14,066.2		$	13,694.1		$	13,480.8
Ceded		(254.2	)		(268.4	)		(285.8	)		(301.8	)		(316.0	)		(310.9	)
Net premiums	$	14,132.0		$	14,117.9		$	14,007.6		$	13,764.4		$	13,378.1		$	13,169.9

Our ceded premiums are primarily attributable to premiums written under state-mandated involuntary Commercial Auto Insurance Procedures/Plans (CAIP) and premiums ceded to state-provided reinsurance facilities, for which we retain no loss indemnity risk.

     At December 31, 2006, 47% of the “prepaid reinsurance premiums” were comprised of CAIP, compared to 53% at December 31, 2005. As of December 31, 2006, approximately 40% of the “reinsurance recoverables” were comprised of CAIP, compared to 45% as of December 31,

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES                     APP.-A-16

2005. The remainder of the “prepaid reinsurance premiums” and “reinsurance recoverables” was primarily related to state-mandated and non-auto programs.

     Losses and loss adjustment expenses were net of reinsurance ceded of $196.3 million in 2006, $197.9 million in 2005 and $271.9 million in 2004.

7) Statutory Financial Information

At December 31, 2006, $475.5 million of consolidated statutory policyholders’ surplus represents net admitted assets of our insurance subsidiaries and affiliate that are required to meet minimum statutory surplus requirements in such entities’ states of domicile. The companies may be licensed in states other than their states of domicile, which may have higher minimum statutory surplus requirements. Generally, the net admitted assets of insurance companies that, subject to other applicable insurance laws and regulations, are available for transfer to the parent company cannot include the net admitted assets required to meet the minimum statutory surplus requirements of the states where the companies are licensed.

     During 2006, the insurance subsidiaries paid aggregate cash dividends of $1,603.1 million to the parent company. Based on the dividend laws currently in effect, the insurance subsidiaries may pay aggregate dividends of $1,402.6 million in 2007 without prior approval from regulatory authorities, provided the dividend payments are not within 12 months of previous dividends paid by the applicable subsidiary.

     Consolidated statutory policyholders’ surplus was $4,963.7 million and $4,674.1 million at December 31, 2006 and 2005, respectively. Statutory net income was $1,603.2 million, $1,393.5 million and $1,659.4 million for the years ended December 31, 2006, 2005 and 2004, respectively.

8) Employee Benefit Plans

Retirement Plans Progressive has a two-tiered Retirement Security Program. The first tier is a defined contribution pension plan covering all employees who meet requirements as to age and length of service. Company contributions vary from 1% to 5% of annual eligible compensation up to the Social Security wage base, based on years of eligible service and may be invested by a participant in any of the investment funds available under the plan. Company contributions were $21.9 million in 2006, $19.5 million in 2005 and $17.2 million in 2004.

     The second tier is a long-term savings plan under which Progressive matches, up to a maximum of 3% of the employee’s eligible compensation, amounts contributed to the plan by an employee. Company matching contributions may be invested by a participant in any of the investment funds available under the plan. Company matching contributions were $29.6 million in 2006, $26.8 million in 2005 and $23.4 million in 2004.

Postemployment Benefits Progressive provides various postemployment benefits to former or inactive employees who meet eligibility requirements, their beneficiaries and covered dependents. Postemployment benefits include salary continuation and disability-related benefits, including workers’ compensation, and, if elected, continuation of health-care benefits for specified periods. The liability was $23.2 million at December 31, 2006, compared to $21.0 million in 2005.

Postretirement Benefits We provide postretirement health and life insurance benefits to all employees who met requirements as to age and length of service at December 31, 1988. There are approximately 100 members in this group of employees. Our funding policy is to contribute annually the maximum amount that can be deducted for federal income tax purposes. Contributions are intended to provide for benefits attributed to past service employees have rendered.

Incentive Compensation Plans — Employees Our incentive compensation includes both non-equity incentive plans (cash) and equity incentive plans (stock-based). The cash incentive compensation includes a cash bonus program for a limited number of senior executives and Gainsharing programs for other employees; the bases of these programs are similar in nature. The stock-based incentive compensation plans provide for the granting of restricted stock awards to key members of management. Prior to 2003, we granted non-qualified stock options as stock-based incentive compensation (see below). The amounts charged to income for the incentive compensation plans for the years ended December 31 were:

(millions)	2006		2005		2004
Cash	$	197.7	$	235.9	$	260.7
Stock-based		27.6		33.7		23.8

APP.-A-17                     THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

Our 2003 Incentive Plan, which provides for the granting of stock-based awards, including restricted stock awards, to key employees of Progressive, has 19.4 million shares currently authorized, after adjusting for the 4-for-1 stock split and net of restricted stock awards cancelled; 13.4 million shares remain available for future restricted stock grants. Our 1995 Incentive Plan and 1989 Incentive Plan have expired; however, awards made under those plans prior to their respective expirations are still in effect.

     In 2003, we began issuing restricted stock awards in lieu of stock options. The restricted stock awards are issued as either time-based or performance-based awards. The time-based awards vest in equal installments upon the lapse of specified periods of time, typically three, four and five year periods. The vesting period (i.e., requisite service period) must be a minimum of six months and one day. The performance-based awards vest upon the achievement of predetermined performance goals. The performance-based awards are granted to approximately 50 executives and senior managers, in addition to their time-based awards, to provide additional compensation for achieving pre-established profitability and growth targets. Generally, the restricted stock awards are expensed pro rata over their respective vesting periods based on the market value of the awards at the time of grant. However, for restricted stock awards granted in 2003 and 2004, that were deferred pursuant to our deferred compensation plan, we record expense on a pro rata basis based on the current market value of Common Shares at the end of the reporting period; these awards are accounted for as liability awards since distributions from the deferred compensation plan will be made in cash.

     Prior to 2003, we granted nonqualified stock options for periods up to ten years. These options became exercisable at various dates not earlier than six months after the date of grant, and remain exercisable for specified periods thereafter. All remaining options vested on January 1, 2007. All options granted had an exercise price equal to the market value of the Common Shares on the date of grant and, under the then applicable accounting guidance, no compensation expense was recorded. Pursuant to the adoption of SFAS 123(R), on January 1, 2006, we began expensing the remaining unvested stock option awards (see Note 1 – Reporting and Accounting Policies, “Stock-Based Compensation,” for further discussion). All option exercises are settled in Progressive Common Shares from either existing treasury shares or newly issued shares.

A summary of all employee restricted stock activity during the years ended December 31 follows:

	2006					2005					2004
				Weighted					Weighted					Weighted
				Average					Average					Average
	Number of			Grant Date		Number of			Grant Date		Number of			Grant Date
Restricted Shares	Shares			Fair Value		Shares			Fair Value		Shares			Fair Value
Beginning of year		5,442,988		$	20.21		3,663,364		$	18.89		2,198,592		$	16.45
Add (deduct):
Granted		1,828,198			26.50		1,942,784			22.62		1,969,664			21.04
Vested		(567,824	)		16.60		(2,728	)		18.45		(399,472	)		16.39
Forfeited		(470,840	)		21.74		(160,432	)		19.37		(105,420	)		17.65
End of year		6,232,522		$	22.27		5,442,988		$	20.21		3,663,364		$	18.89
Available, end of year1		13,448,514					15,276,712					45,775,468

¹ Represents shares available under the 2003 Incentive Plan. The 1995 Incentive Plan expired in February 2005, and the remaining shares thereunder are no longer available for future issuance.

There were 447,608 shares of non-deferred restricted stock awards that vested during the year ended December 31, 2006. The aggregate pretax intrinsic value of these non-deferred awards, based on the average of the high and low stock price on the day prior to vesting, was $5.6 million. There was no intrinsic value attributed to the 120,216 shares under deferred restricted stock awards that vested during the year ended December 31, 2006, since, as previously discussed, these awards were granted in 2003 or 2004 and, therefore, were expensed based on the current market value at the end of each reporting period.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES                     APP.-A-18

A summary of all employee stock option activity during the year ended December 31, 2006 follows:

				Weighted
				Average
	Number of			Grant Date
Nonvested stock options outstanding	Shares			Fair Value
Beginning of period		4,232,220		$	4.76
Deduct:
Vested		(3,053,352	)		4.36
Forfeited		(91,002	)		5.81
End of period		1,087,866		$	5.82

	2006					2005					2004
				Weighted					Weighted					Weighted
	Number of			Average		Number of			Average		Number of			Average
Options Outstanding	Shares			Exercise Price		Shares			Exercise Price		Shares			Exercise Price
Beginning of year		19,621,476		$	8.44		26,358,004		$	8.01		34,900,148		$	7.61
Deduct:
Exercised		(5,649,193	)		7.55		(6,581,264	)		6.67		(8,100,624	)		6.23
Forfeited		(225,062	)		12.09		(155,264	)		10.82		(441,520	)		8.86
End of year		13,747,221		$	8.75		19,621,476		$	8.44		26,358,004		$	8.01
Exercisable, end of year		12,659,355		$	8.38		15,389,256		$	7.82		15,704,856		$	7.50

The total pretax intrinsic value of options exercised during the year ended December 31, 2006, was $102.8 million, based on the actual stock price at time of exercise.

During the year ended December 31, 2006, we recognized $27.6 million, or $17.9 million after taxes, of compensation expense related to our outstanding unvested restricted stock and stock option awards. At December 31, 2006, the total compensation cost related to unvested restricted stock awards not yet recognized was $71.1 million. This compensation expense will be recognized into the income statement over the weighted average vesting period of 2.26 years.

The following employee stock options were outstanding or exercisable as of December 31, 2006:

							Weighted
							Average
			Weighted		Aggregate		Remaining
	Number of		Average		Intrinsic Value		Contractual
	Shares		Exercise Price		(in millions)		Life
Options outstanding		13,747,221	$	8.75	$	212.7	3.48 years
Options exercisable		12,659,355	$	8.38	$	200.5	3.35 years

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on our closing stock price of $24.22 as of December 31, 2006, which would have been received by the option holders had all option holders exercised their options as of that date. All of the exercisable options at December 31, 2006, were “in-the-money.”

Directors Our 2003 Directors Equity Incentive Plan, which provides for the granting of stock-based awards, including restricted stock awards to non-employee directors of Progressive, has 1.4 million shares currently authorized, after adjusting for the 4-for-1 stock split and net of restricted stock awards cancelled; 1.2 million shares remain available for future restricted stock grants. Our 1998 Directors’ Stock Option Plan, under which additional awards are not expected to be made, will expire on April 24, 2008; however, awards made under this plan prior to its expiration are still in effect.

     In 2003, we began issuing restricted stock awards to non-employee directors as the equity component of their compensation. The restricted stock awards are issued as time-based awards. The vesting period (i.e., requisite service period) must be a minimum of six months and one day. The time-based awards granted to date vest eleven months from the date of grant. The restricted stock awards are expensed pro rata over their respective vesting periods based on the market value of the awards at the time of grant.

APP.-A-19                     THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

     Prior to 2003, we granted nonqualified stock options as the equity component of the directors compensation. These options were granted for periods up to ten years, became exercisable at various dates not earlier than six months after the date of grant, and remain exercisable for specified periods thereafter. All options granted had an exercise price equal to the market value of the Common Shares on the date of grant and, under the then applicable accounting guidance, no compensation expense was recorded. All option exercises are settled in Progressive Common Shares from either existing treasury shares or newly issued shares.

     In April 2006, we began granting restricted stock awards to non-employee directors as their sole compensation as a member of the Board of Directors. From April 2003 through April 2006, we issued restricted stock awards in addition to other fees.

A summary of all directors restricted stock activity during the years ended December 31 follows:

	2006					2005					2004
				Weighted					Weighted					Weighted
				Average					Average					Average
	Number of			Grant Date		Number of			Grant Date		Number of			Grant Date
Restricted Shares	Shares			Fair Value		Shares			Fair Value		Shares			Fair Value
Beginning of year		50,244		$	21.91		48,968		$	22.47		64,408		$	16.39
Add (deduct):
Granted		66,031			26.64		50,244			21.91		48,968			22.47
Vested		(50,244	)		21.91		(48,968	)		22.47		(64,408	)		16.39
End of year		66,031		$	26.64		50,244		$	21.91		48,968		$	22.47
Available, end of year1		1,170,349					1,236,380					1,286,624

¹ Represents shares available under the 2003 Directors Equity Incentive Plan.

A summary of all directors stock option activity during the years ended December 31 follows:

	2006					2005					2004
				Weighted					Weighted					Weighted
	Number of			Average		Number of			Average		Number of			Average
Options Outstanding	Shares			Exercise Price		Shares			Exercise Price		Shares			Exercise Price
Beginning of year		873,108		$	8.20		969,108		$	7.79		1,244,244		$	7.24
Deduct:
Exercised		(100,444	)		5.18		(96,000	)		4.06		(275,136	)		5.31
End of year		772,664		$	8.59		873,108		$	8.20		969,108		$	7.79
Exercisable, end of year1		772,664		$	8.59		873,108		$	8.20		969,108		$	7.79

¹ There are still 1,627,824 shares available under the 1998 Directors’ Stock Option Plan; our current policy is to issue restricted stock in lieu of stock options.

Deferred Compensation We maintain The Progressive Corporation Executive Deferred Compensation Plan (Deferral Plan), that permits eligible executives to defer receipt of some or all of their annual bonuses or all of their annual restricted stock awards. Deferred cash compensation is deemed invested in one or more investment funds, including Common Shares of Progressive, offered under the Deferral Plan and recommended by the participant. All distributions from the Deferral Plan pursuant to deferred cash compensation will be paid in cash. Prior to February 2004, distributions representing cash amounts deemed invested in Common Shares were made in-kind.

     For all restricted stock awards granted on or after March 17, 2005, and deferred pursuant to the Deferral Plan, the deferred amounts will be deemed invested in Common Shares and ineligible for transfer to other investment funds in the Deferral Plan; all distributions will be made in-kind. For all awards granted prior to March 17, 2005, the deferred amounts are eligible to be transferred to any of the funds in the Deferral Plan; distributions of these deferred awards will be made in cash.

     We reserved 3,600,000 Common Shares for issuance under the Deferral Plan, after adjusting for the 4-for-1 stock split. An irrevocable grantor trust has been established to provide a source of funds to assist us in meeting our liabilities under the Deferral Plan. At December 31, 2006 and 2005, the trust held assets of $85.9 million and $75.4 million, respectively, of which $13.1 million and $17.2 million were held in Progressive’s Common Shares.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES                      APP.-A-20

9) Segment Information

We write personal automobile and other specialty property-casualty insurance and provide related services throughout the United States. Our Personal Lines segment writes insurance for private passenger automobiles and recreational vehicles. The Personal Lines segment includes both the Agency and Direct Businesses. The Agency Business includes business written by our network of more than 30,000 independent insurance agencies and strategic alliance business relationships (other insurance companies, financial institutions and national brokerage agencies). The Direct Business includes business written online and by phone.

     Our Commercial Auto segment generates business in the specialty truck and light and local commercial auto markets. This segment writes primary liability and physical damage insurance for automobiles and trucks owned by small businesses and is primarily distributed through the independent agency channel.

     Our other indemnity businesses primarily include writing professional liability insurance for community banks and managing our run-off businesses.

     Our service businesses include providing insurance-related services, primarily processing CAIP business.

     All 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, Commercial Auto and 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 businesses 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 $103.4 million in 2006, $92.4 million in 2005 and $99.4 million in 2004. 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:

	2006					2005					2004
			Pretax					Pretax					Pretax
(millions)	Revenues		Profit (Loss)			Revenues		Profit (Loss)			Revenues		Profit (Loss)
Personal Lines
Agency	$	7,903.6	$	936.7		$	7,993.1	$	857.6		$	7,893.7	$	1,108.2
Direct		4,337.4		568.6			4,076.2		475.7			3,718.2		525.6
Total Personal Lines1		12,241.0		1,505.3			12,069.3		1,333.3			11,611.9		1,633.8
Commercial Auto		1,851.9		366.5			1,667.8		298.0			1,524.1		321.4
Other indemnity		25.0		6.5			27.3		7.9			33.9		3.1
Total underwriting operations		14,117.9		1,878.3			13,764.4		1,639.2			13,169.9		1,958.3
Service businesses		30.4		6.0			40.2		15.6			48.5		23.5
Investments2		638.1		626.2			498.8		486.7			563.7		549.8
Interest expense		—		(77.3	)		—		(82.6	)		—		(80.8	)
	$	14,786.4	$	2,433.2		$	14,303.4	$	2,058.9		$	13,782.1	$	2,450.8

1	Private passenger automobile insurance accounted for 91% of the total Personal Lines segment net premiums earned in 2006 and 92% in 2005 and 93% in 2004; recreational vehicles 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.

APP.-A-21                     THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

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 percent of net premiums earned (i.e., revenues). 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:

	2006					2005					2004
	Underwriting			Combined		Underwriting			Combined		Underwriting			Combined
	Margin			Ratio		Margin			Ratio		Margin			Ratio
Personal Lines
Agency		11.9	%		88.1		10.7	%		89.3		14.0	%		86.0
Direct		13.1			86.9		11.7			88.3		14.1			85.9
Total Personal Lines		12.3			87.7		11.0			89.0		14.1			85.9
Commercial Auto		19.8			80.2		17.9			82.1		21.1			78.9
Other indemnity1	NM			NM		NM			NM		NM			NM
Total underwriting operations		13.3			86.7		11.9			88.1		14.9			85.1

¹ Underwriting margins/combined ratios are not meaningful (NM) for our other indemnity businesses due to the insignificant amount of premiums earned by such businesses.

10) Other Comprehensive Income

The components of other comprehensive income for the years ended December 31 were as follows:

	2006									2005									2004
				Tax									Tax									Tax
				(Provision)			After						(Provision)			After						(Provision)			After
(millions)	Pretax			Benefit			Tax			Pretax			Benefit			Tax			Pretax			Benefit			Tax
Unrealized gains (losses) arising during period:
Fixed maturities	$	10.7		$	(3.7	)	$	7.0		$	(138.7	)	$	48.6		$	(90.1	)	$	(48.0	)	$	16.8		$	(31.2	)
Equity securities		292.3			(102.3	)		190.0			135.8			(47.5	)		88.3			241.4			(84.5	)		156.9
Reclassification adjustment:1
Fixed maturities		27.5			(9.7	)		17.8			(12.0	)		4.2			(7.8	)		(74.4	)		26.0			(48.4	)
Equity securities		(12.4	)		4.3			(8.1	)		(54.4	)		19.0			(35.4	)		(93.0	)		32.6			(60.4	)
Change in unrealized gains		318.1			(111.4	)		206.7			(69.3	)		24.3			(45.0	)		26.0			(9.1	)		16.9
Net unrealized gains on forecasted transactions2		(1.8	)		.7			(1.1	)		(1.7	)		.6			(1.1	)		(1.5	)		.5			(1.0	)
Foreign currency translation adjustment3		—			—			—			—			—			—			3.9			—			3.9
Other comprehensive income	$	316.3		$	(110.7	)	$	205.6		$	(71.0	)	$	24.9		$	(46.1	)	$	28.4		$	(8.6	)	$	19.8

1	Represents adjustments for gains (losses) realized in net income for securities held in the portfolio at December 31 of the preceding year.
2	Entered into for the purpose of managing interest rate risk associated with our debt issuances. See Note 4 – Debt. We expect to reclassify $1.9 million into income within the next 12 months.
3	Foreign currency translation adjustments have no tax effect.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES                     APP.-A-22

11) Litigation

The Progressive Corporation and/or its insurance subsidiaries are named as a defendant in various lawsuits arising out of the insurance operations of the insurance subsidiaries. All legal actions relating to claims made under insurance policies are considered by us in establishing our loss and loss adjustment expense reserves.

     In addition, The Progressive Corporation and/or its insurance subsidiaries are named as a defendant in a number of class action or individual lawsuits arising out of the insurance operations of the insurance subsidiaries. Other insurance companies face many of these same issues. The lawsuits discussed below are in various stages of development. We plan to contest these suits vigorously, but may pursue settlement negotiations if appropriate in some cases. The outcomes of these cases are uncertain at this time. In accordance with GAAP, we are only permitted to establish loss reserves for lawsuits when it is probable that a loss has been incurred and we can reasonably estimate its potential exposure (referred to as a loss that is both “probable and estimable” in the discussion below). As to lawsuits that do not satisfy both parts of this GAAP standard, we have not established reserves at this time. However, in the event that any one or more of these cases results in a judgment against or settlement by Progressive, the resulting liability could have a material effect on our consolidated financial condition, cash flows and results of operations.

     As required by the GAAP standard, we have established loss reserves for lawsuits as to which we have determined that a loss is both probable and estimable. Certain of these cases are mentioned in the discussion below. Based on currently available information, we believe that the reserves for these lawsuits are reasonable and that the amounts reserved did not have a material effect on our consolidated financial condition or results of operations. However, if any one or more of these cases results in a judgment against or settlement by our insurance subsidiaries for an amount that is significantly greater than the amount so reserved, the resulting liability could have a material effect on our consolidated financial condition, cash flows and results of operations.

     Following is a discussion of potentially significant pending cases at December 31, 2006, that involve our insurance subsidiaries’ insurance operations.

     There are five putative class action lawsuits challenging our insurance subsidiaries use of certain automated database vendors or software to assist in the adjustment of bodily injury claims. Plaintiffs allege that these databases or software systematically undervalue the claims. We do not consider a loss from these cases to be probable and estimable, and are unable to estimate a range of loss, if any, at this time.

     There are two putative class action lawsuits challenging the installment fee program used by our insurance subsidiaries. We have successfully defended similar cases in the past, including one case that was dismissed in 2005. We do not consider a loss from the currently pending cases to be probable and estimable, and are unable to estimate a range of loss, if any, at this time.

     There is one putative class action lawsuit challenging our insurance subsidiaries practice of specifying aftermarket (non-original equipment manufacturer) replacement parts in the repair of insured or claimant vehicles. Plaintiffs in these cases generally allege that aftermarket parts are inferior to replacement parts manufactured by the vehicle’s original manufacturer and that the use of such parts fails to restore the damaged vehicle to its “pre-loss” condition, as required by their insurance policies. We do not consider a loss from this case to be probable and estimable, and are unable to estimate a range of loss, if any, at this time.

     There are two putative class action lawsuits alleging that the insurance subsidiaries’ rating practices at renewal are improper. We prevailed in a similar putative class action in December 2004. We do not consider a loss from these cases to be probable and estimable, and are unable to estimate a range of loss, if any, at this time.

     There are four certified class action lawsuits and six putative class action lawsuits pending against our insurance subsidiaries, alleging that we failed to adjust MRI bills to a consumer price index in violation of a statute. With respect to the four certified class action lawsuits and two of the six putative class action lawsuits, we have engaged in extensive settlement negotiations and reached two separate settlements, each on a statewide basis. The first of these settlements received trial court approval in October 2006, and was paid during 2006. The amount of the settlement was not material to our consolidated financial condition, cash flows and results of operations. The second of the settlements has not yet been presented to the court for approval; however, a loss reserve has been established in connection with the settlement. With respect to the remaining four putative class action lawsuits, we do not consider a loss from these cases to be probable and estimable, and we are unable to estimate a range of loss, if any, at this time.

     Progressive’s insurance subsidiaries are defending a putative class action claim alleging that we violate the “make-whole” and “common- fund” doctrines. Specifically, it is alleged that we may obtain reimbursement of medical payments made on behalf of an insured only when the insured has been made whole by a third-party tortfeasor and that we further must deduct from the reimbursement amount a proportionate share of the insured’s legal fees for pursuing the third-party tortfeasor. We understand that there are a number of similar class actions against others in the insurance industry. We do not consider a loss from this case to be probable and estimable, and are unable to estimate a range of loss, if any, at this time.

     There are two putative class action lawsuits pending against Progressive’s insurance subsidiaries in Florida, challenging the legality of our payment of preferred provider rates on personal injury protection (PIP) claims. The primary issue is whether we violated Florida law by paying PIP medical expense claims at preferred provider rates. We have engaged in extensive settlement negotiations and reached a settlement on a statewide basis. The settlement received trial court approval in August 2006, and was paid in 2006. The amount of the settlement was not material to our consolidated financial condition, cash flows and results of operations.

APP.-A-23                     THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

     There is one putative class action lawsuit challenging our insurance subsidiaries use of certain automated database vendors to assist in the evaluation of total loss claims. Plaintiffs allege that these databases systematically undervalue total loss claims to the detriment of insureds. We engaged in extensive settlement negotiations and reached a settlement of the putative class action lawsuit on a nationwide basis. The settlement has received trial court approval, and was paid during 2006. The amount of the settlement was not material to our consolidated financial condition, cash flows and results of operations.

     In July 2005, we settled a state class action lawsuit alleging that Progressive’s insurance subsidiaries used non-conforming uninsured/underinsured motorist rejection forms. The settlement received trial court approval in October 2005, and was paid during 2006. The amount of the settlement was not material to our consolidated financial condition, cash flows and results of operations.

     There are eight class action lawsuits challenging certain aspects of our insurance subsidiaries use of credit information and compliance with notice requirements under the federal Fair Credit Reporting Act. During 2004, we entered into a settlement agreement to resolve these cases, had received preliminary court approval of the settlement and had established a reserve accordingly. In February 2005, we were advised that the court denied final approval of the proposed settlement. In 2006, an amended settlement received trial court approval, and the loss reserve has been adjusted accordingly. The adjustment was not material to our financial condition, cash flows and results of operations in 2006. There also are six individual actions and an additional class action lawsuit against our insurance subsidiaries that challenge our use of credit. The six individual actions are stayed pending the outcome of the class actions. We do not consider a loss from these cases to be probable and estimable, and are unable to estimate a range of loss, if any, at this time.

     There is one putative nationwide class action lawsuit challenging our insurance subsidiaries’ practice of taking betterment on boat repairs. We do not consider a loss from this case to be probable and estimable, and are unable to estimate a range of loss, if any, at this time.

     There is one putative class action lawsuit, brought on behalf of insureds, challenging the labor rates our insurance subsidiaries pay to auto body repair shops. We do not consider a loss from this case to be probable and estimable, and are unable to estimate a range of loss, if any, at this time.

     There are two putative class action lawsuits challenging Progressive’s insurance subsidiaries’ practice in Florida of paying PIP and first-party medical payments at 200% of the amount allowed by Medicare. We do not consider a loss from this case to be probable and estimable, and are unable to estimate a range of loss, if any, at this time.

     We have prevailed in four putative class action lawsuits, in various Texas state courts, alleging that we are obligated to reimburse insureds, under their auto policies, for the inherent diminished value of their vehicles after they have been involved in an accident. Plaintiffs defined inherent diminished value as the difference between the market value of the insured automobile before an accident and the market value after proper repair. The Supreme Court of Texas has ruled that diminished value recovery is not available under the Texas automobile policy.

     During 2004, Progressive’s subsidiaries settled a federal collective action lawsuit involving worker classification issues under the federal Fair Labor Standards Act (FLSA) and five state class actions, which were consolidated with the federal case. All of such lawsuits challenged our insurance subsidiaries’ classification of its claims representatives as “exempt” under the FLSA and/or various state laws. In October 2004, we reached an agreement under which we funded an account for all potential claims of class member claims representatives and eligible claims representative trainees. This settlement has been paid and did not have a material effect on our consolidated financial condition, cash flows or results of operations.

     Progressive’s subsidiaries are also named as a defendant in individual lawsuits related to employment issues. The outcomes of these cases are uncertain, but we do not believe that they will have a material impact on our financial condition, cash flows and results of operations.

12) Commitments and Contingencies

We have certain noncancelable operating lease commitments and service contracts with terms greater than one year. The minimum commitments under these agreements at December 31, 2006, are as follows:

(millions)	Operating		Service
Year	Leases		Contracts		Total
2007	$	105.5	$	64.4	$	169.9
2008		81.8		30.8		112.6
2009		54.2		14.3		68.5
2010		34.6		1.1		35.7
2011		18.3		.1		18.4
Thereafter		35.7		—		35.7

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES                     APP.-A-24

Some of the agreements have options to renew at the end of the contract periods. The expense we incurred for the agreements disclosed above, as well as other operating leases that may be cancelable or have terms less than one year, was:

(millions)	Operating		Service
Year	Leases		Contracts		Total
2006	$	138.8	$	90.2	$	229.0
2005		126.4		92.3		218.7
2004		116.0		89.4		205.4

     As of December 31, 2006, we had open investment funding commitments of $.9 million; we had no uncollateralized lines or letters of credit as of December 31, 2006 or 2005.

13) Fair Value of Financial Instruments

Information about specific valuation techniques and related fair value detail is provided in Note 1 – Reporting and Accounting Policies, Note 2 –Investments and Note 4 – Debt. The cost and fair value of the financial instruments as of December 31 are summarized as follows:

	2006						2005
				Fair						Fair
(millions)	Cost			Value			Cost			Value
Investments–Available-for-sale:
Fixed maturities	$	9,959.6		$	9,958.9		$	10,260.7		$	10,221.9
Preferred stocks		1,761.4			1,781.0			1,217.0			1,220.3
Common equities		1,469.0			2,368.1			1,423.4			2,058.9
Short-term investments		581.0			581.2			773.5			773.6
Debt		(1,185.5	)		(1,267.8	)		(1,284.9	)		(1,395.9	)

The value of our investment portfolio is obtained through market level sources for 99.2% of the securities; the remaining securities are valued using private market valuation sources.

14) Related Party Transactions

In October 2004, we purchased 1.1 million of our Common Shares, $1.00 par value, from Peter B. Lewis, Progressive’s Chairman of the Board, or through an entity owned and controlled, directly or indirectly, by Mr. Lewis, at a purchase price of $88.00 per share, on a pre-split basis. This transaction was part of our “Dutch auction” tender offer and the price per share was the same price paid to all shareholders who elected to participate in the tender offer. We did not make any repurchases from Mr. Lewis in 2005 or 2006.

APP.-A-25                     THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

Management’s Report on Internal Control Over Financial Reporting

Progressive’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control structure was designed under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

     Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

     Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under the framework in Internal Control–Integrated Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2006. There were no material weaknesses identified during the internal control review process.

     During the fourth quarter of 2006, there were no changes in our internal control over financial reporting identified in the internal control review process that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

     PricewaterhouseCoopers LLP, an independent registered public accounting firm that audited the financial statements in this Annual Report, has issued an attestation report on management’s assessment of our internal control over financial reporting as of December 31, 2006, which is included herein.

CEO and CFO Certifications

Glenn M. Renwick, President and Chief Executive Officer of The Progressive Corporation, and W. Thomas Forrester, Vice President and Chief Financial Officer of The Progressive Corporation, have issued the certifications required by Sections 302 and 906 of The Sarbanes-Oxley Act of 2002 and applicable SEC regulations with respect to Progressive’s 2006 Annual Report on Form 10-K, including the financial statements provided in this Report. Among other matters required to be included in those certifications, Mr. Renwick and Mr. Forrester have each certified that, to the best of his knowledge, the financial statements, and other financial information included in the Annual Report on Form 10-K, fairly present in all material respects the financial condition, results of operations and cash flows of Progressive as of, and for, the periods presented. See Exhibits 31 and 32 to Progressive’s Annual Report on Form 10-K for the complete Section 302 and 906 Certifications, respectively.

     In addition, Mr. Renwick submitted his annual certification to the New York Stock Exchange (NYSE) on May 19, 2006, stating that he was not aware of any violation by Progressive of the NYSE corporate governance listing standards, as required by Section 303A.12(a) of the NYSE Listed Company Manual.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES APP.-A-26

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of The Progressive Corporation:

We have completed integrated audits of The Progressive Corporation’s consolidated financial statements and of its internal control over financial reporting as of December 31, 2006, in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, changes in shareholders’ equity and cash flows present fairly, in all material respects, the financial position of The Progressive Corporation and its subsidiaries at December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting Also, in our opinion, management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that the Company maintained effective internal control over financial reporting as of December 31, 2006 based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

     A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Cleveland, Ohio
February 28, 2007

APP.-A-27 THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The consolidated financial statements and the related notes, together with the supplemental information, should be read in conjunction with the following discussion of the consolidated financial condition and results of operations.

Overview The Progressive Corporation is a holding company that does not have any revenue producing operations, property or employees of its own. The Progressive Group of Insurance Companies, together with our non-insurance subsidiaries and one mutual company affiliate, comprise what we refer to as Progressive. Progressive has been in business since 1937 and is the country’s third largest auto insurance group based on premiums written. Through our insurance companies, we offer personal automobile insurance and other specialty property-casualty insurance and related services throughout the United States. Our Personal Lines segment writes insurance for private passenger automobiles and recreational vehicles through more than 30,000 independent insurance agencies and directly to consumers online and over the phone. Our Commercial Auto segment, which writes through both the independent agency and direct channels, offers insurance for cars and trucks (e.g., pick-up or panel trucks) owned by small businesses. These underwriting operations, combined with our service and investment operations, make up the consolidated group.

     The Progressive Corporation receives cash through subsidiary dividends, borrowings, equity sales and other transactions and uses these funds to contribute to its subsidiaries (e.g., to support growth), to make payments to shareholders and debt holders (e.g., dividends and interest, respectively), to repurchase its Common Shares and for other business purposes that might arise. In 2006, the holding company received $1.5 billion of dividends from its subsidiaries, net of capital contributions. We used $1.2 billion to repurchase 39.1 million Progressive Common Shares, at an average cost of $24.98 per share, on a post-split basis. We also paid $25.0 million in shareholder dividends and $81.3 million in interest on our outstanding debt. On June 1, 2006, we retired our 7.30% Notes in the aggregate principal amount of $100 million at maturity. We did not issue any debt or equity securities during 2006. The holding company also has access to funds held in a non-insurance subsidiary to satisfy its obligations; at year-end 2006, $2.5 billion of marketable securities were available in this company.

     On May 18, 2006, The Progressive Corporation split its Common Shares on a 4-for-1 basis in the form of a stock dividend. The purpose of the stock split was to increase the supply of our Common Shares and to improve the liquidity of the stock. We did not split our treasury shares. We ended the year with approximately 748.0 million shares outstanding, compared to approximately 789.3 million, split adjusted, at the beginning of 2006.

     On a consolidated basis, we generated positive operating cash flows of $2.0 billion, portions of which were used during the year to repurchase our Common Shares, construct a data center, printing center and related facilities, and for other capital expenditures. In addition, we opened 29 new concierge-level claims service centers during the year, bringing the total number of such centers to 53. These centers are located in 41 metropolitan areas across the United States and represent our primary approach to damage assessment and facilitation of vehicle repairs in urban markets. As such, we will incorporate this approach into our product offerings in these markets and increase customers’ awareness of this distinct offering as part of our ongoing marketing and brand communication. Over the next two years, we are planning to open approximately 18 service centers, some of which will replace existing service centers. Two of these centers will be in additional urban markets while the remainder will expand our coverage in the current metropolitan areas where we have facilities.

     In 2006, Progressive produced net income of $1.6 billion, or $2.10 per share, which was 18% and 21%, respectively, greater than what we earned in the prior year. Our insurance subsidiaries had a good, but not great, year during 2006. Our underwriting profitability remained exceptionally strong at 13.3%, 1.4 points better than 2005, but we experienced slow growth in premiums. In 2006, we experienced little catastrophic claims activity, compared to the significant hurricane losses incurred in 2005. Profitability for the year also benefited from 1.7 points of favorable loss reserve development from prior years, although the favorable development was .9 points less than in 2005. The expense ratio remained relatively flat, despite the environment of declining average premiums.

     As discussed in prior communications, we expected that we would slowly return to more normal operating margins by allowing anticipated increases in severity, and potentially frequency, to absorb the margin in excess of our 96 combined ratio target rather than immediately price it away. Since no significant change in frequency or notable acceleration in severity appeared to emerge during the year, we re-evaluated our approach to pursuing our profitability and growth objectives. During the latter half of 2006, we began to reduce rates where we deemed appropriate. Since we are aware that not all price reductions result in good trade-offs, we assessed our market pricing relative to our goal of a 96 combined ratio. We believe that if executed effectively, we can achieve a good economic trade-off between increased retention and lower margins. Recognizing the importance of retention, we are placing increased emphasis on competitive pricing for our existing, as well as new, customers. To ensure that we stay focused, as we move forward, we will use policies in force as our preferred measure of growth. For 2006, policies in force grew 3% to 9.7 million for our Personal Lines Business and 7% to .5 million for our Commercial Auto Business.

     Progressive was not alone in experiencing strong profitability on slow premium growth. It appears as if the private passenger insurance market will report its fourth consecutive year of underwriting profitability and that the industrywide earned premium for 2006 may well be

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES APP.-A-28

lower than in 2005, something that has not happened in at least 25 years. We believe that this profitability trend is likely to continue into 2007, based on our early assessment of the marketplace.

     Our Personal Lines net premiums written did not grow during 2006. With an approximate 7.6% share of the U.S. private passenger auto market, Progressive’s Personal Lines segment ranks third and competes with approximately 280 other insurance companies/groups with annual auto premiums greater than $5 million. The top 15 insurance groups account for about 75% of the estimated $161.1 billion total net premiums written in the U.S. personal auto insurance market. We are the number one writer of private passenger auto insurance through independent agencies and the third largest writer in the direct channel.

     Our Commercial Auto net premiums written grew 5% in 2006. Our growth, coupled with our estimate that growth in the market remained relatively flat, leads us to believe that we are virtually tied with two other insurance company groups as the co-leaders in the commercial auto insurance market for 2006. As with the personal auto market, the commercial auto market is reporting its fourth consecutive year of underwriting profitability.

     We realize that to remain competitive in the current marketplace, we not only need to continue to be good at allocating costs between consumers in ways that best match their expected costs, managing the claims and administrative costs that ultimately must be allocated, and providing superior consumer experiences, but we must become equally good at marketing our products and services. During 2006, our competitors’ stepped-up advertising increased the potential for our customers to search for lower prices in the marketplace. Toward the latter part of the year, we re-evaluated all our marketing and brand activities and made some necessary adjustments, including new advertising strategies and creative resources.

     In addition to strong underwriting profitability, our investment portfolio also had a good year, with recurring investment income up 21%. Our average investment portfolio increased about 5% during the year and produced a fully taxable equivalent (FTE) total return of 7.4% for 2006, compared to 4.0% in 2005. The total return includes recurring investment income and both net realized gains (losses) and changes in unrealized gains (losses) on investment securities. By reporting on an FTE basis, we are adjusting our tax preferential securities (e.g., municipal bonds) to an equivalent measure when comparing results to taxable securities.

     During the year, we maintained our asset allocation strategy of investing between 75% and 100% of our total portfolio in fixed-income securities with the balance in common equities. At December 31, 2006, 84% of the portfolio was invested in fixed-income securities and 16% was in common equities. Both asset classes performed well, with FTE total returns of 16.3% and 5.9% in the common stock and fixed-income portfolios, respectively, for 2006. Late in the second quarter, we increased the duration of our fixed-income portfolio modestly, but shortened the duration late in the year to end 2006 at a duration of 3.1 years, compared to 3.2 years at the end of 2005. The weighted average credit rating of the fixed-income portfolio increased from AA early in 2006 to AA+ at year end. We continue to maintain our fixed-income portfolio strategy of investing in high-quality, shorter-duration securities in the current investment environment. Our common equity investment strategy remains an index replication approach using the Russell 1000 Index as the benchmark.

     Financial Condition Holding Company In 2006, The Progressive Corporation, the holding company, received $1.5 billion of dividends from its subsidiaries, net of capital contributions. For the three-year period ended December 31, 2006, The Progressive Corporation received $4.6 billion of dividends from its subsidiaries, net of capital contributions made to subsidiaries. The regulatory restrictions on subsidiary dividends are described in Note 7 – Statutory Financial Information, to the financial statements.

     The Board of Directors approved a 4-for-1 stock split that was paid in the form of a stock dividend on May 18, 2006; we did not split treasury shares in conjunction with the stock split.

     During 2006, we repurchased 39,069,743 of our Common Shares, with 3,182,497 Common Shares repurchased prior to the 4-for-1 stock split, and 35,887,246 repurchased after the split. The total cost to repurchase these shares was $1.2 billion with an average cost, on a split-adjusted basis, of $24.98 per share. During the three-year period ended December 31, 2006, we repurchased 62,882,325 of our Common Shares at a total cost of $3.3 billion (average cost of $23.12 per share, on a split-adjusted basis), including shares acquired in the tender offer discussed below.

     During 2004, after evaluating our financial condition, business prospects and capital needs, the Board of Directors determined that we had a significant amount of capital on hand in excess of what was needed to support insurance operations, satisfy corporate obligations and prepare for various contingencies. In view of this situation and our policy to return capital to shareholders when appropriate, the Board determined that a tender offer for up to 17.1 million of our Common Shares would be a prudent use of excess capital. In connection with the tender offer, 16,919,674 Common Shares were repurchased at a total cost of $1.5 billion ($88.00 per share, on a pre-split basis).

     Over the last three years, we have paid modest cash dividends to our shareholders in the aggregate amount of $72.0 million. In light of our capital position, we have challenged ourselves to align our capital policy with our business model, which is designed to produce profitable growth over reasonable periods and to support that growth from operating earnings. As a result, our Board of Directors has approved a plan to replace our previous dividend policy with an annual variable dividend, payable shortly after the close of each year, beginning with the 2007 dividend. This annual dividend will be based on a target percentage of after-tax underwriting income, multiplied by a companywide performance factor (“Gainshare factor”). The target percentage will be determined by our Board of Directors on an annual basis and announced to shareholders and the public. For 2007, the Board established that the variable dividend will be based on 20% of after-tax underwriting profit. The Gainshare factor can range from zero to two and will be determined by comparing our operating performance for the year to certain predetermined

APP.-A-29 THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

profitability and growth objectives approved by the Board. This dividend program will be consistent with the variable cash bonus program currently in place for our employees (referred to as our “Gainsharing Program”). Based on similar parameters and the 1.18 Gainshare factor for 2006, if the dividend policy had been in effect for the year, the dividend would have been about $.39 per share, or $291.7 million. Actual dividends paid in 2006 were $25.0 million, or $.0325 per share. We cannot predict what the 2007 dividend amount will be; however, we will continue to provide the Gainshare factor and full details of underwriting performance on a monthly basis in our earnings releases.

     During the last three years, The Progressive Corporation retired $306 million principal amount of debt securities, including $100 million of our 7.30% Notes which matured during the second quarter 2006. We did not issue any new debt or equity securities during the last three years. See Note 4–Debt for further discussion on our current outstanding debt. Progressive’s debt-to-total capital (debt plus equity) ratios at December 31, 2006 and 2005, were 14.8% and 17.4%, respectively.

Capital Resources and Liquidity Progressive has substantial capital resources and we are unaware of any trends, events or circumstances not disclosed herein that are reasonably likely to affect our capital resources in a material way. We have the ability to issue, through November 30, 2008, $250 million of additional debt securities under a shelf registration statement filed with the Securities and Exchange Commission (SEC) in October 2002. In addition, during 2005, Progressive entered into an uncommitted line of credit with National City Bank in the principal amount of $125 million, replacing a prior credit facility for $100 million. We entered into the line of credit as part of a contingency plan to help maintain liquidity in the unlikely event that we experience conditions or circumstances that affect our ability to transfer or receive funds. We have not borrowed under these arrangements to date. Progressive’s financial policy is to maintain a debt-to-total capital ratio below 30%. At December 31, 2006, the debt-to-total capital ratio was 14.8%, which provides us with substantial borrowing capacity. Our existing debt covenants do not include any rating or credit triggers.

     Progressive’s insurance operations create liquidity by collecting and investing premiums from new and renewal business in advance of paying claims. As an auto insurer, our claims liabilities, by their very nature, are generally short in duration. Approximately 50% of our outstanding reserves are paid within one year and less than 15% are still outstanding after three years. See Claims Payment Patterns, a supplemental disclosure provided in this Annual Report, for further discussion on the timing of claims payments. For the three years ended December 31, 2006, operations generated positive cash flows of $6.7 billion, and cash flows are expected to remain positive in both the short-term and reasonably foreseeable future. In addition, our investment portfolio is highly liquid and consists substantially of readily marketable, investment-grade securities. As of December 31, 2006, 84% of our portfolio was invested in fixed-income securities with a weighted average credit quality of AA+ and duration of 3.1 years. We believe that we have sufficient readily marketable securities to cover our claims payments without having a negative effect on our cash flows from operations.

     Progressive’s net premiums written-to-surplus ratio was 2.8 to 1 at December 31, 2006, compared to 3.0 at December 31, 2005 and 2.9 at December 31, 2004. We would like to increase operating leverage slowly, over time, through a higher rate of net premiums to surplus in our insurance subsidiaries where permitted by law. We believe that substituting operating leverage (higher premiums-to-surplus ratio) for financial leverage (lower debt-to-total capital ratio) reduces our risk profile. In the event of profitability problems, we could raise rates to slow growth, which would reduce the operating leverage, but would have little or no effect on our debt service obligations.

     Progressive seeks to deploy capital in a prudent manner and uses multiple data sources and modeling tools to estimate the frequency, severity and correlation of identified exposures, including, but not limited to, catastrophic losses and the business interruptions discussed below, to estimate our potential capital needs. Based on this analysis, as well as the information reported above, we believe that we have sufficient capital resources, cash flows from operations and borrowing capacity to support our current and anticipated growth, scheduled debt payments, expected dividends and other capital requirements.

Commitments and Contingencies During 2006, we constructed a data center, printing center and related facilities in Colorado Springs, Colorado, at a total cost of $64.2 million, and opened 29 new claims service centers (discussed below). During the year, we also acquired additional land for future development to support corporate operations in Colorado Springs, Colorado and Mayfield Village, Ohio, near our current corporate facilities, at a total cost of $16.2 million. In 2005, we completed the conversion of a building in Austin, Texas, into a call center at a total acquisition and development cost of $40.6 million. In 2007, we expect to begin a multi-year project to construct three buildings, three parking garages and associated facilities in Mayfield Village at a currently estimated construction cost of $200 million. All such projects, including the additional claims service centers discussed below, have been, and will continue to be, funded through operating cash flows.

     As of December 31, 2006, we have a total of 53 centers that are available to provide concierge-level claims service, compared to 26 in 2005 and 20 in 2004. Two centers opened during the year replaced existing service center sites. The service centers are located in 41 different metropolitan areas across the United States. The significant expansion supports our commitment to these service centers as our primary approach to damage assessment and facilitation of vehicle repairs in urban markets. Over the next two years, we are planning to open approximately 18 service centers, some of which will replace existing service centers. Two of these centers will be in additional urban markets while the remainder will expand our coverage in the current metropolitan areas where we have facilities. The cost of these facilities, including land and building development, is estimated to average $5 to $7 million per center, depending on a number of variables, including the size and location of the center.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES APP.-A-30

     In late 2004 and early 2005, Progressive and its various subsidiaries received formal inquiries and requests for information and documents from nine states relating to the states’ respective investigations into possible bid-rigging and other unlawful conduct by certain insurers, brokers or other industry participants. We understand that these investigations also focus, in part, on contingent commission arrangements between certain insurers and brokers. One state requested updated information in December 2005, which we provided in early 2006. Many companies in the insurance industry received such formal inquiries, and more inquiries may be received from other states in the future. We have not been notified by any governmental or regulatory authority that we are the target of any such investigation. While we believe that our previous contingent commission contracts complied with applicable laws, we made a business decision to offer contingent commission contracts only to independent agents, and not brokers, after January 1, 2005. We have been cooperating fully with these investigations, and we intend to continue to cooperate fully if further requests are received. Our contingent commission payments represent approximately 2% of the total commissions paid in 2006, and we do not expect this to change in 2007.

     We maintain insurance on our real property and other physical assets, including coverage for losses due to business interruptions caused by covered property damage. However, the insurance will not compensate us for losses that may occur due to disruptions in service as a result of a computer, data processing or telecommunications systems failure that is unrelated to covered property damage, nor will the insurance necessarily compensate us for all losses resulting from covered events. To help maintain functionality and reduce the risk of significant interruptions of our operations, we maintain back-up systems or facilities for certain of our principal systems and services. We still may be exposed, however, should these measures prove to be unsuccessful or inadequate against severe, multiple or prolonged service interruptions or against interruptions of systems where no back-up currently exists. In addition, we have established emergency management teams, which are responsible for responding to business disruptions and other risk events. The teams’ ability to respond successfully may be limited depending on the nature of the event, the completeness and effectiveness of our plans to maintain business continuity upon the occurrence of such an event, and other factors beyond our control.

Off-Balance-Sheet Arrangements Except for the items disclosed in Note 2 – Investments regarding our credit default swap, Note 12 –Commitments and Contingencies regarding open investment funding commitments of $.9 million at December 31, 2006, and operating leases and service contracts (also disclosed in the table below), we do not have any off-balance-sheet arrangements.

Contractual Obligations A summary of our noncancelable contractual obligations as of December 31, 2006, follows:

	Payments due by period
			Less than						More than
(millions)	Total		1 year		1-3 years		3-5 years		5 years
Debt	$	1,200.0	$	—	$	—	$	—	$	1,200.0
Interest payments on debt		1,293.4		77.7		155.4		155.4		904.9
Operating leases		330.1		105.5		136.0		52.9		35.7
Service contracts		110.7		64.4		45.1		1.2		—
Loss and loss adjustment expense reserves		5,725.0		3,066.9		2,139.9		392.0		126.2
Total	$	8,659.2	$	3,314.5	$	2,476.4	$	601.5	$	2,266.8

Unlike many other forms of contractual obligations, loss and loss adjustment expense (LAE) reserves do not have definitive due dates and the ultimate payment dates are subject to a number of variables and uncertainties. As a result, the total loss and LAE reserve payments to be made by period, as shown above, are estimates based on our recent payment patterns. To further understand our claims payments, see Claims Payment Patterns, a supplemental disclosure provided in this Annual Report. In addition, we annually publish a comprehensive Report on Loss Reserving Practices, which was filed with the SEC on a Form 8-K on June 28, 2006, that further discusses our claims payment development patterns.

     As discussed in the Capital Resources and Liquidity section above, we believe that we have sufficient borrowing capacity, cash flows and other capital resources to satisfy these contractual obligations.

APP.-A-31 THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

Results Of Operations
Underwriting Operations
Growth

	Growth over prior year
	2006			2005			2004
Direct premiums written		1	%		4	%		12	%
Net premiums written		1	%		5	%		12	%
Net premiums earned		3	%		5	%		16	%

	At December 31,
(thousands)	2006			2005			2004
Policies in Force
Personal Lines
Agency – Auto		4,433.1			4,491.4			4,244.9
Direct – Auto		2,428.5			2,327.7			2,084.1
Special Lines1		2,879.5			2,674.9			2,351.3
Total Personal Lines		9,741.1			9,494.0			8,680.3
Growth over prior year		3	%		9	%		11	%
Commercial Auto		503.2			468.2			420.2
Growth over prior year		7	%		11	%		15	%

¹ Includes insurance for motorcycles, recreational vehicles, mobile homes, watercraft, snowmobiles, a personal umbrella product and similar items.

Progressive continued to experience slowing growth in both premiums and policies in force during 2006, as compared to the growth rates achieved in 2005 and 2004, reflecting continued “soft market” conditions where rates are stable or decreasing and customers are shopping less. 2006 is expected to be the fourth straight year of underwriting profitability in both the personal auto and commercial auto insurance markets and the first year, at least in the last 25 years, where earned premium may be lower than the prior year. We continue to see increased competition as evidenced by rate cutting by competitors and other non-price actions, such as increased advertising, higher commission payments to agents and brokers and a relaxation of underwriting standards. During the latter part of 2006, we began to reduce rates where we believe we are able to achieve a good economic trade-off.

     To analyze growth, we review new policies, rate levels, and the retention characteristics of our books of business. During 2006, year-over-prior year new applications decreased 7% in our Personal Lines Businesses, after remaining relatively flat during 2005 and 2004. However, we generated solid increases in renewal business in each of the last three years. In our Commercial Auto Business, new applications remained relatively flat in 2006 and increased modestly in 2005 and 2004. Commercial Auto renewal business increased modestly in 2006 and 2005 and increased significantly in 2004.

     During 2006, 2005 and 2004, we filed 336, 187 and 124 auto rate revisions, respectively, in various states. The overall effect of these revisions was that our rates decreased slightly in all three years. These rate changes, coupled with shifts in the mix of business, contributed to a 2.8% decrease in average earned premium per application in 2006, compared to declines of 4.3% in 2005 and 1.7% in 2004. Conscious that not all price reductions result in good trade-offs, we will continue to challenge ourselves to assess our market pricing relative to our goal of a 96 combined ratio and to determine which trade-offs would benefit our business.

     Another important element affecting growth is customer retention. Compared to prior years, our private passenger auto products retention decreased in both the Agency and Direct channels in 2006 and 2004; in 2005, we experienced a slight lengthening in the Agency channel. On the other hand, retention in our Commercial Auto Business improved slightly in almost every tier in each of the last three years. Realizing the importance that retention has on our ability to continue to grow profitably, we are placing increased emphasis on competitive pricing for our current customers to ensure their likelihood of staying with us. To ensure that we stay focused, as we move forward, we will use policies in force as our preferred measure of growth. For 2006, our Personal Lines policies in force grew 3%, compared to 9% in 2005 and 11% in 2004. In our Commercial Auto Business, policies in force for 2006, 2005 and 2004 grew 7%, 11% and 15%, respectively.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES APP.-A-32

Profitability Profitability of our underwriting operations is defined by pretax underwriting profit, which is calculated as net premiums earned less losses and loss adjustment expenses, policy acquisition costs and other underwriting expenses. We also use underwriting profit margin, which is underwriting profit expressed as a percent of net premiums earned, to analyze our results. For the three years ended December 31, our underwriting profitability measures were as follows:

	2006					2005					2004
	Underwriting Profit					Underwriting Profit					Underwriting Profit
(millions)	$		Margin			$		Margin			$		Margin
Personal Lines
Agency	$	936.7		11.9	%	$	857.6		10.7	%	$	1,108.2		14.0	%
Direct		568.6		13.1			475.7		11.7			525.6		14.1
Total Personal Lines		1,505.3		12.3			1,333.3		11.0			1,633.8		14.1
Commercial Auto		366.5		19.8			298.0		17.9			321.4		21.1
Other indemnity1		6.5	NM				7.9	NM				3.1	NM
Total underwriting operations	$	1,878.3		13.3	%	$	1,639.2		11.9	%	$	1,958.3		14.9	%

¹ Underwriting margins are not meaningful (NM) for our other indemnity businesses due to the insignificant amount of premiums earned by such businesses.

The lower underwriting margins for 2005 reflect the higher losses incurred as a result of the major hurricanes experienced during the latter part of 2005.

APP.-A-33 THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

Further underwriting results for Progressive’s Personal Lines Businesses, including its channel components, the Commercial Auto Business and other indemnity businesses, as defined in Note 9-Segment Information, were as follows (detailed discussions below):

(millions)	2006		2005		2004
Net Premiums Written
Personal Lines
Agency	$	7,854.3	$	8,005.6	$	7,933.6
Direct		4,354.5		4,177.3		3,802.2
Total Personal Lines		12,208.8		12,182.9		11,735.8
Commercial Auto		1,898.0		1,801.2		1,616.6
Other indemnity		25.2		23.5		25.7
Total underwriting operations	$	14,132.0	$	14,007.6	$	13,378.1
Net Premiums Earned
Personal Lines
Agency	$	7,903.6	$	7,993.1	$	7,893.7
Direct		4,337.4		4,076.2		3,718.2
Total Personal Lines		12,241.0		12,069.3		11,611.9
Commercial Auto		1,851.9		1,667.8		1,524.1
Other indemnity		25.0		27.3		33.9
Total underwriting operations	$	14,117.9	$	13,764.4	$	13,169.9
Underwriting Performance
Personal Lines–Agency
Loss & loss adjustment expense ratio		67.8		69.1		65.8
Underwriting expense ratio		20.3		20.2		20.2
Combined ratio		88.1		89.3		86.0
Personal Lines–Direct
Loss & loss adjustment expense ratio		66.8		68.4		65.5
Underwriting expense ratio		20.1		19.9		20.4
Combined ratio		86.9		88.3		85.9
Total Personal Lines
Loss & loss adjustment expense ratio		67.4		68.9		65.7
Underwriting expense ratio		20.3		20.1		20.2
Combined ratio		87.7		89.0		85.9
Commercial Auto
Loss & loss adjustment expense ratio		61.0		62.4		59.7
Underwriting expense ratio		19.2		19.7		19.2
Combined ratio		80.2		82.1		78.9
Total Underwriting Operations1
Loss & loss adjustment expense ratio		66.5		68.0		64.9
Underwriting expense ratio		20.2		20.1		20.2
Combined ratio		86.7		88.1		85.1
Accident year-Loss & loss adjustment expense ratio		68.2		70.6		65.7

¹ Combined ratios for the other indemnity businesses are not presented separately due to the insignificant amount of premiums earned by such businesses. For the years ended December 31, 2006, 2005 and 2004, these businesses generated an underwriting profit of $6.5 million, $7.9 million and $3.1 million, respectively.

LOSSES AND LOSS ADJUSTMENT EXPENSES (LAE)

(millions)	2006		2005		2004
Change in net loss and LAE reserves	$	50.5	$	364.6	$	602.1
Paid losses and LAE		9,344.4		9,000.2		7,952.9
Total incurred losses and LAE	$	9,394.9	$	9,364.8	$	8,555.0

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES APP.-A-34

Claims costs, our most significant expense, represent payments made, and estimated future payments to be made, to or on behalf of our policyholders, including expenses needed to adjust or settle claims. These costs include an estimate for costs related to assignments, based on current business, under state-mandated automobile insurance programs. Claims costs are defined by loss severity and frequency and are influenced by inflation, driving patterns, among other factors. Accordingly, anticipated changes in these factors are taken into account when we establish premium rates and loss reserves. Results would differ if different assumptions were made. See the Critical Accounting Policies for a discussion of the effect of changing estimates.

     During 2006, we continued to report favorable loss ratios and experienced few large catastrophe losses. The 2006 storms contributed .5 points to our loss ratio, compared to 2.4 points and .8 points from catastrophes in 2005 and 2004, respectively. The large amount of catastrophe losses in 2005 primarily related to Hurricanes Katrina and Wilma.

     We continued to see a reduction in frequency rates in 2006 as we have over the last two years. Our frequency patterns appear to be similar to what the rest of the industry experienced. We cannot predict the degree or direction of frequency change that we will experience in the future. We continue to analyze trends to distinguish changes in our experience from external factors, such as more vehicles per household and greater vehicle safety, versus those resulting from shifts in the mix of business.

     Progressive’s severity increased modestly during 2006, compared to 2005, and was fairly consistent with that reported for the industry as a whole according to the Property Casualty Insurers Association of America. Bodily injury severity increased on a year-over-year basis, with the fourth quarter seeing a larger increase over last year than the prior three quarters of 2006. Compared to the prior year, personal injury protection severity increased throughout 2006, primarily reflecting a change with regard to the payments related to litigated claims in a few states. The severity of property losses was up, as compared with the prior year, after adjusting for the numerous catastrophes in 2005. We plan to continue to be diligent about recognizing trend when setting rates and establishing loss reserves and continue to evaluate our claims handling performance in these areas.

The table below presents the actuarial adjustments implemented and the loss reserve development experienced in the years ended December 31:

(millions)	2006		2005		2004
Actuarial Adjustments
Favorable/(Unfavorable)
Prior accident years	$	158.3	$	127.2	$	40.5
Current accident year		57.8		78.4		47.8
Calendar year actuarial adjustment	$	216.1	$	205.6	$	88.3
Prior Accident Years Development
Favorable/(Unfavorable)
Actuarial adjustment	$	158.3	$	127.2	$	40.5
All other development		88.6		228.7		68.6
Total development	$	246.9	$	355.9	$	109.1
Combined ratio effect	1.7 pts.		2.6 pts.		.8 pts.

Total development consists both of actuarial adjustments and “all other development.” The actuarial adjustments represent the net changes made by our actuarial department to both current and prior accident year reserves based on regularly scheduled reviews. “All other development” represents claims settling for more or less than reserved, emergence of unrecorded claims at rates different than reserved and changes in reserve estimates on specific claims. Although we believe that the favorable development from both the actuarial adjustments and “all other development” generally results from the same factors, as discussed below, we are unable to quantify the portion of the reserve adjustments that might be applicable to any one or more of those underlying factors.

     Pursuant to the table above, the total development for 2006 is 31% less than that experienced in 2005, while 2005 was significantly higher than 2004. The development in 2006, 2005 and 2004, favorably contributed to our combined ratio by 1.7 points, 2.6 points and .8 points, respectively. The total prior year loss reserve development experienced in all three years was generally consistent across our business (e.g., product, distribution channel and state). Approximately 55-60% of the total development related to the immediately preceding accident year, with the remainder primarily affecting the preceding two accident years at a declining rate. These changes in estimates were made based on our actual loss experience involving the payment of claims, along with our evaluation of the needed reserves during these periods, as compared with the prior reserve levels for those claims.

     Changes in the severity estimates are the principal cause of prior period adjustments. While the modest changes in claims severity are very observable in the data as they develop, it is difficult to determine accurately why the changes are more modest than expected when the reserves were originally established. We believe that the changes in severity estimates are related to factors as diverse as improved vehicle safety, more conservative jury awards, better fraud control, tenure of our claims personnel and other process improvements in our claims

APP.-A-35 THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

organization. However, in our claims review process, we are unable to quantify the contribution of each such factor to the overall favorable reserve development for the year.

     Over the last few years, including 2006, we have experienced favorable reserve development. We believe the favorable development in 2006 and 2005 occurred as a result of a combination of industrywide factors and internal claims handling improvements, resulting in more consistency in evaluating and settling bodily injury claims, while 2004 was primarily driven by our internal process improvements. Our analysis of the current situation and historical trends lead us to believe that it is likely that the benefits from these improvements will level off and cost increases (e.g., medical costs, litigation settlements) will drive our estimates of severity in the future. Under this scenario, we believe that our severity trend is approaching historically more normal levels in the 4% to 6% range for personal auto liability, primarily driven by an increase in personal injury protection severity in 2006.

     We continue to focus on our loss reserve analysis, attempting to enhance accuracy and to further our understanding of our loss costs. A detailed discussion of our loss reserving practices can be found in our Report on Loss Reserving Practices, which was filed in a Form 8-K on June 28, 2006.

     Because we are primarily an insurer of motor vehicles, our exposure as an insurer of environmental, asbestos and general liability claims is limited. We have established reserves for these exposures in amounts that we believe to be adequate based on information currently known. These exposures are not expected to have a material effect on our liquidity, financial condition, cash flows or results of operations.

UNDERWRITING EXPENSES Other underwriting expenses and policy acquisition costs as a percentage of premiums earned were fairly stable over the last three years, despite operating in an environment where average premiums are declining. The increase in “other underwriting expenses,” as shown in the income statement, primarily reflects increases in salaries and advertising expenditures. In 2004, our results included the cost of settling certain class action lawsuits (see Note 11 — Litigation). In accordance with GAAP, policy acquisition costs are amortized over the policy period in which the related premiums are earned (see Note 1 — Reporting and Accounting Policies).

Personal Lines

	Growth over prior year
	2006			2005			2004
Net premiums written		—	%		4	%		12	%
Net premiums earned		1	%		4	%		16	%
Policies in force		3	%		9	%		11	%

Progressive’s Personal Lines Businesses write insurance for private passenger automobiles and recreational vehicles, and represented 86% of our total 2006 net premiums written, compared to 87% in 2005 and 88% in 2004. Private passenger auto represented slightly more than 90% of our total Personal Lines net premiums written in each of the past three years. In 2006, policies in force grew 1% in our private passenger auto business, while the special lines products (e.g., motorcycles, watercraft, and RVs) grew 8%. Net premiums written remained flat in 2006 for private passenger auto and grew 7% in special lines, compared to 2005. In 2005 and 2004, policies in force grew 8% and 9%, respectively, for private passenger auto and 14% and 18%, respectively, for special lines; net premiums written grew 3% and 11%, respectively, for private passenger auto and 14% and 20%, respectively, for special lines.

     Total Personal Lines generated an 87.7 combined ratio in 2006, compared to 89.0 and 85.9 in 2005 and 2004, respectively. The special lines products had a favorable effect on the total Personal Lines combined ratio of about 1 point in 2006 and had little effect in both 2005 and 2004. The Personal Lines Businesses are comprised of the Agency Business and the Direct Business.

THE AGENCY BUSINESS

	Growth over prior year
	2006			2005			2004
Net premiums written		(2	)%		1	%		10	%
Net premiums earned		(1	)%		1	%		14	%
Auto policies in force		(1	)%		6	%		7	%

The Agency Business includes business written by the more than 30,000 independent insurance agencies that represent Progressive, as well as brokerages in New York and California. Compared to the prior year, new business applications (i.e., an issued policy) for private passenger auto decreased 10% in 2006, reflecting “soft market” conditions. Written premium per application remained flat on new business and was down modestly for renewal business as compared to 2005. The rate of conversions (i.e., converting a quote to a sale) was down in 2006, on a solid increase in the number of auto quotes. Within the Agency Business, we are seeing a shift from traditional agent quoting, where the conversion rate is remaining stable, to quotes generated through third-party comparative rating systems or those initiated by consumers on the Internet, where the conversion rate is declining. In each of the Agency Business auto risk tiers, retention declined as compared to 2005.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES APP.-A-36

For 2005, new applications decreased 5% and written premium per application for both new and renewal business was down when compared to the prior year. In addition, for 2005 the rate of conversions was relatively flat, quotes increased slightly, and retention lengthened compared to 2004. For 2004, new applications and conversions were relatively flat; both premium per application and retention were down slightly during the year. Our Agency Business expense ratio was relatively flat over the last three years.

     In 2004, we launched the Drive^® Insurance from Progressive brand to enhance our positioning with independent insurance agencies by providing them a more effective marketing voice to promote their service proposition through advertising. In 2005, we continued to build on the introduction of this brand. During 2006, we re-examined all of our marketing and brand activities and discovered that the Drive Insurance from Progressive brand, for some, de-emphasized the association of the Agency Business unit with Progressive and created unintended separation from our claims service and other companywide benefits. As a result, in early 2007, we repositioned the Progressive name in the names of all products we sell through agents, including naming the private passenger auto product written through agents Progressive Drive Insurance. A change of this nature was not something we expected so soon after market introduction, but one we hope can ensure maximum leverage of the Progressive name as a business generator for our independent agents. We will use Drive Insurance as our brand name for agent and broker private passenger auto products in California.

THE DIRECT BUSINESS

	Growth over prior year
	2006			2005			2004
Net premiums written		4	%		10	%		17	%
Net premiums earned		6	%		10	%		20	%
Auto policies in force		4	%		12	%		13	%

The Direct Business includes business written directly by Progressive online and over the phone. New auto applications decreased 4% in 2006, compared to increases of 8% and 6% in 2005 and 2004, respectively; renewal applications increased in each of the last three years. Internet sales continue to be the most significant source of new business initiation in the Direct Business.

     For the Direct Business, total overall quotes decreased in 2006, as compared to 2005, with a slight decrease in those generated via the Internet, either for complete or partial quoting, and a significant decrease in the number of phone quotes. Conversion rates for both Internet-and phone-initiated business increased slightly during 2006. However, the overall Direct Business conversion rate was relatively flat for the year, reflecting the increasing mix of Internet business, which has a lower conversion rate than phone. In 2005, the total Direct conversion rate was down slightly on a significant increase in the number of quotes, while in 2004, we experienced a slight increase in the conversion rate and a modest increase in quotes.

     Written premium per application for both new and renewal Direct auto business was down slightly in each of the last three years, as compared to the prior year. Retention was down in most of the Direct auto tiers in 2006, 2005 and 2004, as compared to the prior year.

     The Direct expense ratio did not fluctuate significantly over the last three years. A higher percentage of renewal business, which incurs lower expenses, favorably affected the expense ratio. However, advertising expenditures increased in each of the last three years. During 2006, we signed an agreement with a new primary advertising agency to help us continue to find compelling ways to help consumers understand what sets us apart and to communicate our brand promise.

Commercial Auto

	Growth over prior year
	2006			2005			2004
Net premiums written		5	%		11	%		19	%
Net premiums earned		11	%		9	%		24	%
Policies in force		7	%		11	%		15	%

Progressive’s Commercial Auto Business writes primary liability and physical damage insurance for automobiles and trucks owned by small businesses, with the majority of our customers insuring three or fewer vehicles. In 2006, the Commercial Auto Business represented 14% of our total net premiums written, compared to 13% in 2005 and 12% in 2004. The Commercial Auto Business, which is distributed through both the independent agency and direct channels, operates in the specialty truck and light and local commercial auto markets. The specialty truck commercial auto market, which accounts for slightly more than half of the total Commercial Auto premiums and approximately 40% of the vehicles we insure in this business, includes dump trucks, logging trucks, tow trucks, local cartage and other short-haul commercial vehicles. The remainder is in the light and local commercial auto market, which includes autos, vans and pick-up trucks used by artisans, such as contractors, landscapers and plumbers, and a variety of other small businesses. Because of our growth and the estimate that the commercial auto market will remain relatively flat in 2006, we believe our Commercial Auto Business is in a virtual tie with two other insurance companies as the co-leaders in the commercial auto insurance market, based on estimated 2006 direct premiums written.

APP.-A-37 THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

     Policies in force in our Commercial Auto Business grew 7% in 2006, compared to 11% and 15% in 2005 and 2004, respectively. New business applications increased 1% in 2006, 3% in 2005 and 5% in 2004. Our Commercial Auto Business entered New Jersey and West Virginia in late 2005 and early 2006, respectively. In early 2007, we entered Massachusetts, bringing the total number of states in which we write Commercial Auto insurance to 49, compared to 47 states in 2005 and 45 states in 2004. We do not currently write Commercial Auto in Hawaii. Written premium per application increased in both 2006 and 2005, partially reflecting Commercial Auto’s shift from 6-month to 12-month policies, which has a favorable effect on premium per application. This shift started at the end of the first quarter 2004 and was substantially completed in the second quarter 2005. In 2004, written premium per application was flat on new business and decreased slightly for renewal business, as compared to the prior year. Over the last three years, Commercial Auto experienced a slight increase in retention in most tiers.

     Commercial Auto’s expense ratio was slightly higher in 2005 primarily due to the significant expenditures made that year related to the branding of Commercial Auto under the Drive brand. With the repositioning of the Progressive name for the agent-specific product, Commercial Auto will use a product-specific brand, Progressive Commercial, when we want to focus specifically on this product. Nevertheless, the primary brand will be Progressive and all consumer advertising will be supported by the Progressive brand.

     Although Commercial Auto differs from Personal Lines auto in its customer base and products written, both businesses require the same fundamental skills, including disciplined underwriting and pricing, as well as excellent claims service. Since the Commercial Auto policies have higher limits (up to $1 million) than Personal Lines auto, we analyze the large loss trends and reserving in more detail to allow us to react quickly to changes in this exposure.

Other Indemnity Progressive’s other indemnity businesses, which represent less than 1% of our net premiums earned, primarily include writing professional liability insurance for community banks and our run-off businesses. The underwriting profit (loss) in these businesses may fluctuate widely due to the insignificant premium volume and the run-off nature of some of these products.

Service Businesses Our service businesses provide insurance-related services and represented less than 1% of 2006, 2005 and 2004 revenues. Our principal service business is providing policy issuance and claims adjusting services for the Commercial Auto Insurance Procedures/Plans (CAIP), which are state-supervised plans serving the involuntary markets in 25 states. We processed approximately 50% of the premiums in the CAIP market during the last three years. We compete with two other providers nationwide for this CAIP business. As a service provider, we collect fee revenue that is earned on a pro rata basis over the term of the related policies. We cede 100% of the premiums and losses to the plans. Reimbursements to us from the CAIP plans are required by state laws and regulations. Material violations of contractual service standards can result in ceding restrictions for the affected business. We have maintained, and plan to continue to maintain, compliance with these standards. Any changes in our participation as a CAIP service provider would not materially affect our financial condition, results of operations or cash flows.

     The significant decrease in service revenues reflects a cyclical downturn in the involuntary commercial auto market. At the same time, however, expenses are not decreasing at the same rate primarily due to the costs associated with our total loss concierge program, which is classified as a service business. This program is primarily a customer-service initiative, through which we help policyholders and claimants find and purchase a replacement vehicle when their automobile is declared to be a total loss.

Litigation The Progressive Corporation and/or its subsidiaries are named as a defendant in a number of putative class action or other lawsuits, such as those alleging damages as a result of our use of after-market parts; total loss evaluation methodology; use of credit in underwriting and related requirements under the federal Fair Credit Reporting Act; installment fee programs; practices in evaluating or paying medical or injury claims or benefits, including, but not limited to, personal injury protection, medical payments, uninsured motorist/underinsured motorist (UM/UIM), and bodily injury benefits; rating practices at renewal; the utilization, content, or appearance of UM/UIM rejection forms; the practice of taking betterment on boat repairs; labor rates paid to auto body repair shops; and cases challenging other aspects of our claims or marketing practices or other business operations. Other insurance companies face many of these same issues. During 2006, we settled nationwide claims challenging our use of credit information and notice requirements under the federal Fair Credit Reporting Act; statewide class action lawsuits that challenged our payment of preferred provider rates on personal injury protection claims; and certain statewide class action lawsuits challenging our payments of MRI bills under personal injury protection coverage. In 2005, we settled nationwide claims challenging our use of certain automated database vendors to assist in the evaluation of total loss claims and a state class action challenging our UM/UIM rejection form. In 2004, we settled a number of individual actions concerning alternative agent commission programs; a consolidated federal wage and hour class action lawsuit, which includes several state cases; and a claim brought by Florida medical providers challenging preferred provider payment reductions. See Note 11 — Litigation for a more detailed discussion.

Income Taxes Income taxes are comprised of net deferred tax assets, offset by net income taxes payable. A deferred tax asset is a tax benefit which will be realized in a future tax return. At December 31, 2006 and 2005, our income taxes were in a net asset position. The decrease in income taxes during 2006 primarily reflected a greater deferred tax liability generated during the year associated with the increase we experienced in our net unrealized gains on securities during 2006. See Note 3 — Income Taxes for further information.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES APP.-A-38

Investments Portfolio Allocation Progressive’s investment strategy targets a range of between 75% and 100% in fixed-income securities with the balance in common equities. This strategy is based on our need to maintain capital adequate to support our insurance operations, which includes the short-tail nature of our reserves. Investments in our portfolio have varying degrees of risk. We evaluate the risk/reward trade-offs of investment opportunities, measuring their effects on stability, diversity, overall quality and liquidity, and the potential return of the investment portfolio. The composition of the investment portfolio at year-end was:

			Gross		Gross					% of
			Unrealized		Unrealized			Fair		Total			Duration
(millions)	Cost		Gains		Losses			Value		Portfolio			(years)		Rating1
2006
Fixed maturities	$	9,959.6	$	74.8	$	(75.5	)	$	9,958.9		67.8	%		3.6	AAA		-
Preferred stocks		1,761.4		31.5		(11.9	)		1,781.0		12.1			1.5		A	-
Short-term investments:
Auction rate municipal obligations		99.4		—		—			99.4		.7			<1	AAA		-
Auction rate preferred stocks		69.2		.2		—			69.4		.5			<1		A	-
Other short-term investments2		412.4		—		—			412.4		2.8			<1		A	+
Total short-term investments		581.0		.2		—			581.2		4.0			<1		A	+
Total fixed income		12,302.0		106.5		(87.4	)		12,321.1		83.9			3.1	AA		+
Common equities		1,469.0		904.0		(4.9	)		2,368.1		16.1		na		na
Total portfolio3, 4	$	13,771.0	$	1,010.5	$	(92.3	)	$	14,689.2		100.0	%		3.1	AA		+
2005
Fixed maturities	$	10,260.7	$	64.8	$	( 103.6	)	$	10,221.9		71.6	%		3.5	AA		+
Preferred stocks		1,217.0		17.0		(13.7	)		1,220.3		8.6			2.0		A	-
Short-term investments:
Auction rate municipal obligations		280.2		—		—			280.2		2.0			<1	AAA		-
Auction rate preferred stocks		105.0		.2		(.1	)		105.1		.7			<1		A	-
Other short-term investments2		388.3		—		—			388.3		2.7			<1	AA		+
Total short-term investments		773.5		.2		(.1	)		773.6		5.4			<1	AA		+
Total fixed income		12,251.2		82.0		(117.4	)		12,215.8		85.6			3.2	AA
Common equities		1,423.4		650.3		(14.8	)		2,058.9		14.4		na		na
Total portfolio3, 4	$	13,674.6	$	732.3	$	(132.2	)	$	14,274.7		100.0	%		3.2	AA

na = not applicable
1	Credit quality ratings are assigned by nationally recognized securities rating organizations. To calculate the weighted average credit quality ratings, we weight individual securities based on fair value and assign a numeric score to each credit rating based on a scale from 0-5.
2	Other short-term investments include Eurodollar deposits, commercial paper and other investments, which are expected to mature within one year.
3	Includes net unsettled security acquisitions of $41.9 million and $158.5 million at December 31, 2006 and 2005, respectively.
4	December 31, 2006 and 2005 totals include $2.5 billion and $2.2 billion, respectively, of securities in the portfolio of a consolidated, non-insurance subsidiary of the holding company.

As of December 31, 2006, our portfolio had $918.2 million in net unrealized gains, compared to $600.1 million at year-end 2005. The increase in net unrealized gains was primarily the result of solid returns in the equity-indexed common stock portfolio. The increase in the net unrealized gains in our fixed-income portfolio was primarily the result of our short-duration strategy, limiting the negative mark-to-market impact of higher yields.

APP.-A-39 THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

FIXED-INCOME SECURITIES The fixed-income portfolio is managed internally and includes fixed-maturity securities, short-term investments and preferred stocks. The fixed-maturity securities and short-term securities, as reported on the balance sheets, were comprised of the following:

(millions)	December 31, 2006				December 31, 2005
Investment-grade fixed maturities:1
Short/intermediate term	$	10,381.9	98.5	%	$	10,709.7	97.4	%
Long term		70.9	.7			17.6	.2
Non-investment-grade fixed maturities2		87.3	.8			268.2	2.4
Total	$	10,540.1	100.0	%	$	10,995.5	100.0	%

1	Long term includes securities with expected liquidation dates of 10 years or greater. Asset-backed securities are reported at their weighted average maturity based upon their projected cash flows. All other securities that do not have a single expected maturity date are reported at average maturity. See Note 2 — Investments.
2	Non-investment-grade fixed-maturity securities are non-rated or have a quality rating of an equivalent BB+ or lower, classified by the lowest rating from a nationally recognized rating agency. The decline in non-investment grade securities in 2006 was primarily related to sales activity.

Included in the fixed-income portfolio are asset-backed securities, which were comprised of the following at December 31:

	Fair		% of Asset-			Duration
(millions)	Value		Backed Securities			(years)		Rating
2006
Collateralized mortgage obligations	$	575.9		24.1	%		1.8	AAA
Commercial mortgage-backed obligations		770.4		32.2			3.1	AAA		-
Commercial mortgage-backed obligations: interest-only		893.7		37.4			2.2	AAA		-
Subtotal commercial mortgage-backed obligations		1,664.1		69.6			2.6	AAA		-
Other asset-backed securities:
Automobile		—		—			—		—
Home equity		23.0		1.0			.5	AAA
Other		127.1		5.3			1.2	AA		-
Subtotal other asset-backed securities		150.1		6.3			1.1	AA		-
Total asset-backed securities	$	2,390.1		100.0	%		2.3	AAA		-
2005
Collateralized mortgage obligations	$	392.5		16.5	%		2.1	AAA
Commercial mortgage-backed obligations		462.4		19.5			3.1	AA		+
Commercial mortgage-backed obligations: interest-only		698.2		29.4			2.3	AAA
Subtotal commercial mortgage-backed obligations		1,160.6		48.9			2.6	AAA		-
Other asset-backed securities:
Automobile		511.6		21.5			.6	AAA
Home equity		182.7		7.7			.5	AAA
Other		128.6		5.4			1.3	AA
Subtotal other asset-backed securities		822.9		34.6			.7	AAA		-
Total asset-backed securities	$	2,376.0		100.0	%		1.9	AAA		-

Substantially all of the asset-backed securities are liquid with available market quotes and contain no residual interests (the most subordinated class in a pool of securitized assets).

     A primary exposure for the fixed-income portfolio is interest rate risk, which is managed by maintaining the portfolio’s duration between 1.8 to 5 years. Interest rate risk includes the change in value resulting from movements in the underlying market rates of debt securities held. The fixed-income portfolio had a duration of 3.1 years at December 31, 2006, compared to 3.2 years at December 31, 2005. The distribution of duration and convexity (i.e., a measure of the speed at which the duration of a security will change based on a rise or fall in interest rates) are monitored on a regular basis.

     Excluding the unsettled securities transactions, the allocation to fixed-income securities at December 31, 2006, was 83.8% of the portfolio, within our normal range of variation; at December 31, 2005, the allocation was 85.4%.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES APP.-A-40

     Another exposure related to the fixed-income portfolio is credit risk, which is managed by maintaining a minimum average portfolio credit quality rating of A+, as defined by nationally recognized rating agencies, and limiting non-investment-grade securities to a maximum of 5% of the fixed-income portfolio. Pursuant to guidelines established by our Board of Directors, concentration in a single issuer’s bonds and preferred stocks is limited to no more than 6% of our shareholders’ equity, except for U.S. Treasury and agency bonds; any state’s general obligation bonds are limited to 12% of shareholders’ equity.

The quality distribution of the fixed-income portfolio was as follows:

Rating	December 31, 2006			December 31, 2005
AAA		61.1	%		61.8	%
AA		15.0			13.2
A		14.4			12.9
BBB		8.3			9.9
Non Rated/Other		1.2			2.2
		100.0	%		100.0	%

COMMON EQUITIES Common equities, as reported in the balance sheets, were comprised of the following:

(millions)	December 31, 2006				December 31, 2005
Common Stocks	$	2,352.0	99.3	%	$	2,034.8	98.8	%
Other Risk Investments		16.1	.7			24.1	1.2
Total Common Equities	$	2,368.1	100.0	%	$	2,058.9	100.0	%

Common equities, which generally have greater risk and volatility of fair value than fixed-income securities, may range from 0% to 25% of the investment portfolio. At December 31, 2006 and 2005, excluding the net unsettled security transactions, these securities comprised 16.2% and 14.6%, respectively, of the total portfolio. Common stocks are managed externally to track the Russell 1000 Index with an anticipated annual tracking error of +/- 50 basis points. During 2006, the GAAP basis total return (not fully taxable equivalent adjusted) was 15.6%, within the tracking error.

     Our common equity allocation is intended to enhance the return of and provide diversification for the total portfolio. To maintain high correlation with the Russell 1000, we held 713 out of 987, or approximately 72%, of the common stocks comprising the index at December 31, 2006. Our individual holdings are selected based on their contribution to the correlation with the index.

     Other risk investments include private equity investments and limited partnership interests in private equity and mezzanine investment funds which have no off-balance-sheet exposure or contingent obligations, except for the $.9 million of open funding commitments discussed in Note 12 — Commitments and Contingencies.

     We monitor the value at risk of the fixed-income and equity portfolios, as well as the total portfolio, to evaluate the maximum potential loss. For further information, see Quantitative Market Risk Disclosures, a supplemental schedule provided in this Annual Report.

TRADING SECURITIES Trading securities may be entered into from time to time for the purpose of near-term profit generation. We have not entered into any trading securities in the last three years.

DERIVATIVE INSTRUMENTS Derivative instruments may also be used for trading purposes or classified as trading derivatives due to characteristics of the transaction. During 2006, we closed our credit default protection derivatives, which were held on several issuers and matched with Treasury securities that had equivalent principal and maturities to replicate cash bond positions. The combined positions generated a net gain (loss) of $9.9 million in 2006, compared to $(7.6) million and $(1.4) million for 2005 and 2004, respectively. The amount and results of the derivative and Treasury positions were immaterial to our financial condition, cash flows and results of operations and are reported as part of the available-for-sale portfolio, with the net gain (loss) reported as a component of net realized gains (losses) on securities.

     In 2006, we purchased default protection, in the form of a credit default swap, on a standard tranche of a commonly traded index of 125 investment-grade credits, with a notional amount of $40 million. This derivative will benefit from an increase in the market price of default risk. The amount and results of the derivative position are immaterial to our financial condition, cash flows and results of operations and are reported as part of the available-for-sale portfolio, with the net gain ($.1 million in 2006) reported as a component of net realized gains (losses) on securities and the expense ($.1 million in 2006) reported as a component of net investment income.

APP.-A-41 THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

Investment Results Recurring investment income (interest and dividends, before investment and interest expenses) increased 21% in 2006, 11% in 2005 and 4% in 2004. The increase in investment income during 2006 was primarily the result of an increase in investment yields, with a small growth in average assets providing the balance of the increase. In 2005, the increase in investment income was a more balanced combination of yield and portfolio growth in average assets, while in 2004, the increase in investment income was primarily the result of increased average assets from the prior period, somewhat offset by declining yields during the period.

     Investment expenses were $11.9 million in 2006, compared to $12.1 million in 2005 and $13.9 million in 2004. Investment expenses were higher in 2004 due to the non-recurring costs associated with our “Dutch auction” tender offer that was completed during the fall of 2004.

     The decrease in interest expense for 2006 reflects that on June 1, 2006, we retired our $100 million 7.30% Notes at maturity.

     We report total return to reflect more accurately the management philosophy governing the portfolio and our evaluation of investment results. The fully taxable equivalent (FTE) total return includes recurring investment income, net realized gains (losses) on securities and changes in unrealized gains (losses) on investment securities. By reporting on an FTE basis, we are adjusting our tax preferential securities to an equivalent measure when comparing results to taxable securities. We reported the following investment results for the years ended December 31:

	2006			2005			2004
Pretax recurring investment book yield		4.6	%		4.1	%		3.8	%
Weighted average FTE book yield		5.3	%		4.7	%		4.4	%
FTE total return:
Fixed-income securities		5.9	%		3.4	%		4.2	%
Common stocks		16.3	%		7.1	%		11.6	%
Total portfolio		7.4	%		4.0	%		5.2	%

REALIZED GAINS/LOSSES Gross realized gains and losses were the result of customary investment sales transactions affected by movements in credit spreads and interest rates. From time to time, gross realized losses also include write-downs for securities determined to be other-than-temporarily impaired in our fixed-income and/or equity portfolios; disclosure related to these write-downs is provided below. Periodically, the rebalancing of our equity-indexed portfolio will also generate realized gains and/or losses.

OTHER-THAN-TEMPORARY IMPAIRMENT Included in the net realized gains (losses) on securities for the years ended 2006, 2005 and 2004, are write-downs on securities determined to have had an other-than-temporary decline in fair value. We routinely monitor our portfolio for price changes, which might indicate potential impairments, and perform detailed reviews of securities with unrealized losses based on predetermined criteria. In such cases, changes in fair value are evaluated to determine the extent to which such changes are attributable to (i) fundamental factors specific to the issuer, such as financial conditions, business prospects or other factors or (ii) market-related factors, such as interest rates or equity market declines (i.e., negative returns at either a sector index level or the broader market level).

     Fixed-income and equity securities with declines attributable to issuer-specific fundamentals are reviewed to identify all available evidence, circumstances and influences to estimate the potential for, and timing of, recovery of the investment’s impairment. An other-than-temporary impairment loss is deemed to have occurred when the potential for, and timing of, recovery does not satisfy the criteria set forth in the current accounting guidance (see Critical Accounting Policies, Other-than-Temporary Impairment for further discussion).

     For fixed-income investments with unrealized losses due to market or industry-related declines where we have the intent and ability to hold the investment for the period of time necessary to recover a significant portion of the investment’s impairment and collect the interest obligation, declines are not deemed to qualify as other than temporary. Our policy for common stocks with market-related declines is to recognize impairment losses on individual securities with losses that are not reasonably expected to be recovered under historical market conditions when the security has been in such a loss position for three consecutive quarters.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES APP.-A-42

     When a security in our investment portfolio has an unrealized loss in fair value that is deemed to be other than temporary, we reduce the book value of such security to its current fair value, recognizing the decline as a realized loss in the income statement. All other unrealized gains or losses are reflected in shareholders’ equity. The write-down activity for the years ended December 31 was as follows:

			Write-downs		Write-downs
	Total		On Securities		On Securities
(millions)	Write-downs		Subsequently Sold		Held at Period End
2006
Fixed income	$	1.8	$	.3	$	1.5
Common equities		2.4		2.0		.4
Total portfolio	$	4.2	$	2.3	$	1.9
2005
Fixed income	$	14.6	$	5.3	$	9.3
Common equities		7.1		—		7.1
Total portfolio	$	21.7	$	5.3	$	16.4
2004
Fixed income	$	.3	$	—	$	.3
Common equities		11.3		3.8		7.5
Total portfolio	$	11.6	$	3.8	$	7.8

The following is a summary of the 2006 equity security write-downs by sector (both market-related and issuer specific):

												Remaining
												Gross
			Equity Portfolio			Russell 1000						Unrealized
	Amount of		Allocation at			Allocation at			Russell 1000			Loss at
(millions)	Write-down		December 31,			December 31,			Sector Return			December 31,
Sector	in 2006		2006			2006			in 2006			2006
Auto and Transportation	$	.3		2.3	%		2.3	%		12.4	%	$	.1
Consumer Discretionary		1.1		13.0			14.0			9.0			1.4
Consumer Staples		—		7.2			7.2			16.0			—
Financial Services		.2		23.4			23.9			18.7			.4
Health Care		.4		11.8			12.0			6.0			1.4
Integrated Oil		—		6.3			5.6			34.7			—
Materials and Processing		—		4.0			4.2			18.3			.1
Other Energy		—		2.6			3.0			2.6			.1
Producer Durables		—		5.0			4.4			15.8			—
Technology		—		12.4			12.4			10.5			1.4
Utilities		—		7.5			7.4			29.5			—
Other Equities		—		4.5			3.6			9.7			—
Total Common Stocks	$	2.0		100.0	%		100.0	%		15.6	%	$	4.9
Other Risk Assets		.4											—
Total Common Equities	$	2.4										$	4.9

See Critical Accounting Policies, Other-than-Temporary Impairment for further discussion.

APP.-A-43 THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

Repurchase Transactions During each of the last three years, we entered into repurchase commitment transactions, whereby we loaned U.S. Treasury or U.S. Government agency securities to accredited brokerage firms in exchange for cash equal to the fair value of the securities. These internally managed transactions were typically overnight arrangements. The cash proceeds were invested in AA or higher financial institution obligations with yields that exceeded our interest obligation on the borrowed cash. We are able to borrow the cash at low rates since the securities loaned are in short supply. Our interest rate exposure does not increase or decrease since the borrowing and investing periods match. During the year ended December 31, 2006, our largest single outstanding balance of repurchase commitments was $2,604.8 million, which was open for five consecutive days, with an average daily balance of $1,171.9 million for the year. During 2005, the largest single outstanding balance of repurchase commitments was $2,028.9 million, which was open for two days, with an average daily balance of $920.5 million for the year. We had no open repurchase commitments at December 31, 2006 and 2005. We earned income of $3.7 million, $4.5 million and $1.8 million on repurchase commitments during 2006, 2005 and 2004, respectively.

Critical Accounting Policies Progressive is required to make certain estimates and assumptions when preparing its financial statements and accompanying notes in conformity with GAAP. Actual results could differ from those estimates in a variety of areas. The two areas that we view as most critical with respect to the application of estimates and assumptions are the establishment of our loss reserves and the method of determining impairments in our investment portfolio.

Loss and LAE Reserves Loss and loss adjustment expense (LAE) reserves represent our best estimate of our ultimate liability for losses and LAE relating to events that occurred prior to the end of any given accounting period but have not yet been paid. At December 31, 2006, we had $5.4 billion of net loss and LAE reserves, which included $4.2 billion of case reserves and $1.2 billion of incurred but not recorded (IBNR) reserves.

     Progressive’s actuarial staff reviews many subsets of the business, which are at a combined state, product and line coverage level (the “products”), to calculate the needed loss and LAE reserves. We begin our review of a set of data by producing six different estimates of needed reserves, three using paid data and three using incurred data, to determine if a reserve change is required. In the event of a wide variation among results generated by the different projections, our actuarial group will further analyze the data using additional techniques. Each review develops a point estimate for a relatively small subset of the business, which allows us to establish meaningful reserve levels.

     We review a large majority of our reserves by product/state combination on a quarterly time frame, with almost all the remaining reserves reviewed on a semiannual basis. A change in our scheduled reviews of a particular subset of the business depends on the size of the subset or emerging issues relating to the product or state. By reviewing the reserves at such a detailed level, we have the ability to identify and measure variances in trend by state, product and line coverage that would not otherwise be seen on a consolidated basis. Our intricate process of reviewing over 350 subsets makes compiling a companywide roll up to generate a range of needed loss reserves not meaningful. We do not review loss reserves on a macro level and, therefore, do not derive a companywide range of reserves to compare to a standard deviation.

     In analyzing the ultimate accident year loss experience, our actuarial staff reviews in detail, at the subset level, frequency (number of losses per earned car year), severity (dollars of loss per each claim) and average premium (dollars of premium per earned car year). The loss ratio, a primary measure of loss experience, is equal to the product of frequency times severity divided by the average premium. The average premium for personal and commercial auto businesses is known and, therefore, is not estimated. The projection of frequency for these lines of business is usually very stable because a large majority of the injured parties report their claims within a short time period after the accident. The actual frequency experienced will vary depending on the change in mix of class of drivers written by Progressive, but the accuracy of the projected level is considered to be reliable. The severity experienced by Progressive, which is much more difficult to estimate, is affected by changes in underlying costs, such as medical costs, jury verdicts and regulatory changes. In addition, severity will vary relative to the change in our mix of business by limit.

     Assumptions regarding needed reserve levels made by the actuarial staff take into consideration influences on the historical data that reduce the predictiveness of our projected future loss cost. Internal considerations that are process-related, which generally result from changes in the claims organization’s activities, include claim closure rates, the number of claims that are closed without payment and the level of the claims representatives’ estimates of the needed case reserves for each claim. We study these changes and their effect on the historical data at the state level versus on a larger, less indicative, countrywide basis.

     External items considered include the litigation atmosphere, state-by-state changes in medical costs and the availability of services to resolve claims. These also are better understood at the state level versus at a more macro countrywide level.

     The manner in which we consider and analyze the multitude of influences on the historical data, as well as how loss reserves affect our financial results, is discussed in more detail in our Report on Loss Reserving Practices, which was filed on June 28, 2006 via Form 8-K.

     Progressive’s carried net reserve balance of $5.4 billion implicitly assumes that the loss and LAE severity will increase for accident year 2006 over accident year 2005 by 3.8% and 2.0% for personal auto liability and commercial auto liability, respectively. Personal auto liability and commercial auto liability reserves represent over 98% of our total carried reserves. As discussed above, the severity estimates are influenced by many variables that are difficult to quantify and which influence the final amount of claims settlement. That, coupled with changes in internal claims practices, the legal environment and state regulatory requirements, requires significant judgment in the estimate of the needed reserves to be carried.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES APP.-A-44

     The following table highlights what the impact would be to our carried loss and LAE reserves, on a net basis, as of December 31, 2006, if during 2007 we were to experience the indicated change in our estimate of severity for the 2006 accident year:

	Estimated Changes in Severity for Accident Year 2006
					As
(millions)	-2%		-1%		Reported		+1%		+2%
Personal Auto Liability	$	3,988.2	$	4,038.9	$	4,089.6	$	4,140.3	$	4,191.0
Commercial Auto Liability		1,157.6		1,166.0		1,174.4		1,182.8		1,191.2
Other1		99.6		99.6		99.6		99.6		99.6
Total	$	5,245.4	$	5,304.5	$	5,363.6	$	5,422.7	$	5,481.8

1	Includes reserves for personal and commercial auto physical damage claims and our non-auto lines of business; no change in estimates is presented due to the immaterial level of these reserves.
	Note: every percentage point change in our estimate of severity for the 2006 accident year would impact our personal auto liability reserves by $50.7 million and our commercial auto liability reserves by $8.4 million.

On the other hand, if during 2007 we were to experience the indicated change in our estimate of severity for each of the prior three accident years (i.e., 2006, 2005 and 2004), the impact to our year-end 2006 reserve balances would be as follows:

	Estimated Changes in Severity for Accident Years 2006, 2005 and 2004
					As
(millions)	-2%		-1%		Reported		+1%		+2%
Personal Auto Liability	$	3,799.0	$	3,944.3	$	4,089.6	$	4,234.9	$	4,380.2
Commercial Auto Liability		1,127.0		1,150.7		1,174.4		1,198.1		1,221.8
Other1		99.6		99.6		99.6		99.6		99.6
Total	$	5,025.6	$	5,194.6	$	5,363.6	$	5,532.6	$	5,701.6

1	Includes reserves for personal and commercial auto physical damage claims and our non-auto lines of business; no change in estimates is presented due to the immaterial level of these reserves.
	Note: every percentage point change in our estimate of severity for each of the accident years 2006, 2005 and 2004 would impact our personal auto liability reserves by $145.3 million and our commercial auto liability reserves by $23.7 million.

Our best estimate of the appropriate amount for our reserves as of year-end 2006 is included in our financial statements for the year. At the point in time when reserves are set, we have no way of knowing whether our reserve estimates will prove to be high or low (and, thus, whether future reserve development will be favorable or unfavorable), or whether one of the alternative scenarios discussed above is “reasonably likely” to occur.

     Our goal is to ensure that total reserves are adequate to cover all loss costs, while sustaining minimal variation from the time reserves are initially established until losses are fully developed. During 2006, our estimate of the needed reserves at the end of 2005 decreased 4.6%. The following table shows how we have performed against this goal over the last ten years.

APP.-A-45 THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

(millions)
For the years ended
December 31,	1996		1997		1998		1999			2000		2001		2002		2003		2004		2005		2006
Loss and LAE reserves1	$	1,532.9	$	1,867.5	$	1,945.8	$	2,200.2		$	2,785.3	$	3,069.7	$	3,632.1	$	4,346.4	$	4,948.5	$	5,313.1	$	5,363.6
Re-estimated reserves as of:
One year later		1,429.6		1,683.3		1,916.0		2,276.0			2,686.3		3,073.2		3,576.0		4,237.3		4,592.6		5,066.2
Two years later		1,364.5		1,668.5		1,910.6		2,285.4			2,708.3		3,024.2		3,520.7		4,103.3		4,485.2		—
Three years later		1,432.3		1,673.1		1,917.3		2,277.7			2,671.2		2,988.7		3,459.2		4,048.0		—		—
Four years later		1,451.0		1,669.2		1,908.2		2,272.3			2,666.9		2,982.7		3,457.8		—		—		—
Five years later		1,445.1		1,664.7		1,919.0		2,277.5			2,678.5		2,993.7		—		—		—		—
Six years later		1,442.0		1,674.5		1,917.6		2,284.9			2,683.7		—		—		—		—		—
Seven years later		1,445.6		1,668.4		1,921.9		2,287.4			—		—		—		—		—		—
Eight years later		1,442.5		1,673.9		1,923.4		—			—		—		—		—		—		—
Nine years later		1,443.2		1,675.5		—		—			—		—		—		—		—		—
Ten years later		1,443.6		—		—		—			—		—		—		—		—		—
Cumulative development:
Favorable/(unfavorable)	$	89.3	$	192.0	$	22.4	$	(87.2	)	$	101.6	$	76.0	$	174.3	$	298.4	$	463.3	$	246.9
Percentage2		5.8		10.3		1.2		(4.0	)		3.6		2.5		4.8		6.9		9.4		4.6

1	Represents loss and LAE reserves net of reinsurance recoverables on net unpaid losses at the balance sheet date.
2	Cumulative development ÷ loss and LAE reserves.

Note: The chart above represents the development of the property-casualty loss and LAE reserves for 1996 through 2005. The reserves are re-estimated based on experience as of the end of each succeeding year and are increased or decreased as more information becomes known about the frequency and severity of claims for individual years. The cumulative development represents the aggregate change in the estimates over all prior years. Since the characteristics of the loss reserves for both personal auto and commercial auto are similar, we report development in the aggregate rather than by segment.

We experienced consistently favorable reserve development from 1996 through 1998, primarily due to the decreasing bodily injury severity. The reserves established as of the end of each year assumed the current accident year’s severity would increase over the prior accident year’s estimate. During this period, our bodily injury severity decreased each quarter when compared to the same quarter the prior year. This period of decreasing severity that we experienced was not only longer than that generally experienced by the industry, but also longer than any time in our history. As the experience continued to be evaluated at later dates, the realization of the decreased severity resulted in favorable reserve development. Late in 1998, we started experiencing an increase in bodily injury severity. As a result, the reserve development from 1998 through 2001 has been much closer to our original estimate. In total, the recent development reflects changes in severity from year to year at rates less than originally estimated.

     Because Progressive is primarily an insurer of motor vehicles, we have minimal exposure as an insurer of environmental, asbestos and general liability claims.

     To allow interested parties to understand our loss reserving process and the effect it has on our financial results, in addition to the discussion above, we annually publish a comprehensive Report on Loss Reserving Practices, which is filed via Form 8-K, and is available on our Web site at investors.progressive.com.

Other-than-Temporary Impairment Under current accounting guidance, companies are required to perform periodic reviews of individual securities in their investment portfolios to determine whether a decline in the value of a security is other than temporary. A review for other-than-temporary impairment (OTI) requires companies to make certain judgments regarding the materiality of the decline; its effect on the financial statements; the probability, extent and timing of a valuation recovery; and the company’s ability and intent to hold the security. The scope of this review is broad and requires a forward-looking assessment of the fundamental characteristics of a security, as well as market-related prospects of the issuer and its industry.

     Pursuant to these requirements, we assess valuation declines to determine the extent to which such changes are attributable to (i) fundamental factors specific to the issuer, such as financial conditions, business prospects or other factors, or (ii) market-related factors, such as interest rates or equity market declines (i.e., negative returns at either a sector index level or the broader market level). This evaluation reflects our assessment of current conditions, as well as predictions of uncertain future events, that may have a material effect on the financial statements related to security valuation.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES APP.-A-46

     For fixed-income investments with unrealized losses due to market- or industry-related declines where we have the intent and ability to hold the investment for the period of time necessary to recover a significant portion of the investment’s impairment and collect the interest obligation, declines are not deemed to qualify as other than temporary. Our policy for common stocks with market-related declines is to recognize impairment losses on individual securities with losses that are not reasonably expected to be recovered under historical market conditions when the security has been in such a loss position for three consecutive quarters.

     When persuasive evidence exists that causes us to evaluate a decline in fair value to be other than temporary, we reduce the book value of such security to its current fair value, recognizing the decline as a realized loss in the income statement. All other unrealized gains (losses) are reflected in shareholders’ equity.

     As of December 31, 2006, Progressive’s total portfolio had $92.3 million in gross unrealized losses, compared to $132.2 million in gross unrealized losses at year-end 2005. The decrease in the gross unrealized loss position from 2005 primarily relates to sales within our fixed-income portfolio.

     The following table stratifies the gross unrealized losses in our portfolio at December 31, 2006, by duration in a loss position and magnitude of the loss as a percentage of the cost of the security. The individual amounts represent the additional OTI loss we would have recognized in the income statement if our policy for market-related declines was different from what is stated above.

			Total Gross
(millions)	Fair		Unrealized		Decline of Investment Value
Total Portfolio	Value		Losses		> 15%		> 25%		> 35%		> 45%
Unrealized loss for 1 quarter	$	1,675.7	$	5.6	$	.2	$	.1	$	—	$	—
Unrealized loss for 2 quarters		115.9		1.9		.9		.2		—		—
Unrealized loss for 3 quarters		96.1		3.9		1.0		.5		.2		—
Unrealized loss for 1 year or longer		4,832.2		80.9		1.5		.6		.4		—
Total	$	6,719.9	$	92.3	$	3.6	$	1.4	$	.6	$	—

We determined that none of the securities represented by the table above met the criteria for other-than-temporary impairment write-downs. However, if we had decided to write down all securities in an unrealized loss position for one year or longer where the securities decline in value exceeded 25%, we would have recognized an additional $.6 million of OTI losses in the income statement.

     The $80.9 million of gross unrealized losses that have been impaired for one year or longer are primarily within the fixed-income portfolio. None of these securities was deemed to have any fundamental issues that would lead us to believe that they were other-than-temporarily impaired. We have the intent and ability to hold the investment for the period of time necessary to recover a significant portion of the investment’s impairment and collect the interest obligation, and will do so, as long as the securities continue to be consistent with our investment strategy.

     We will retain the common stocks to maintain correlation to the Russell 1000 Index as long as the portfolio and index correlation remain similar. If our strategy was to change and these securities were impaired, we would recognize a write-down in accordance with our stated policy.

     Since total unrealized losses are already a component of our shareholders’ equity, any recognition of additional OTI losses would have no effect on our comprehensive income or book value.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Statements in this Annual Report that are not historical fact are forward-looking statements that are subject to certain risks and uncertainties that could cause actual events and results to differ materially from those discussed herein. These risks and uncertainties include, without limitation, uncertainties related to estimates, assumptions and projections generally; inflation and changes in economic conditions (including changes in interest rates and financial markets); the accuracy and adequacy of our pricing and loss reserving methodologies; the competitiveness of our pricing and the effectiveness of our initiatives to retain more customers; initiatives by competitors and the effectiveness of our response; our ability to obtain regulatory approval for requested rate changes and the timing thereof; the effectiveness of our brand strategy and advertising campaigns relative to those of competitors; legislative and regulatory developments; disputes relating to intellectual property rights; the outcome of litigation pending or that may be filed against us; weather conditions (including the severity and frequency of storms, hurricanes, snowfalls, hail and winter conditions); changes in driving patterns and loss trends; acts of war and terrorist activities; our ability to maintain the uninterrupted operation of our facilities, systems (including information technology systems) and business functions; court decisions and trends in litigation and health care and auto repair costs; and other matters described from time to time in our releases and publications, and in our periodic reports and other documents filed with the United States Securities and Exchange Commission. In addition, investors should be aware that generally accepted accounting principles prescribe when a company may reserve for particular risks, including litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve is established for one or more contingencies. Reported results, therefore, may appear to be volatile in certain accounting periods.

APP.-A-47 THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

Ten Year Summary—Financial Highlights

(unaudited)

(millions–except ratios, per share amounts
and number of people employed)	2006			2005			2004			2003			2002
Insurance Companies Selected Financial Information and Operating Statistics—Statutory Basis
Net premiums written	$	14,132.0		$	14,007.6		$	13,378.1		$	11,913.4		$	9,452.0
Growth		1	%		5	%		12	%		26	%		30	%
Policyholders’ surplus	$	4,963.7		$	4,674.1		$	4,671.0		$	4,538.3		$	3,370.2
Net premiums written to policyholders’ surplus ratio		2.8			3.0			2.9			2.6			2.8
Loss and loss adjustment expense ratio		66.6			68.1			65.0			67.4			70.9
Underwriting expense ratio		19.9			19.3			19.6			18.8			20.4
Statutory combined ratio		86.5			87.4			84.6			86.2			91.3
Selected Consolidated Financial Information—GAAP Basis
Total assets	$	19,482.1		$	18,898.6		$	17,184.3		$	16,281.5		$	13,564.4
Total shareholders’ equity		6,846.6			6,107.5			5,155.4			5,030.6			3,768.0
Common Shares outstanding		748.0			789.3			801.6			865.8			871.8
Common Share price:
High	$	30.09		$	31.23		$	24.32		$	21.17		$	15.12
Low		22.18			20.35			18.28			11.56			11.19
Close (at December 31)		24.22			29.20			21.21			20.90			12.41
Market capitalization	$	18,116.6		$	23,040.7		$	17,001.9		$	18,088.9		$	10,819.3
Book value per Common Share		9.15			7.74			6.43			5.81			4.32
Return on average common shareholders’ equity		25.3	%		25.0	%		30.0	%		29.1	%		19.3	%
Debt outstanding	$	1,185.5		$	1,284.9		$	1,284.3		$	1,489.8		$	1,489.0
Ratios:
Debt to total capital		14.8	%		17.4	%		19.9	%		22.8	%		28.3	%
Price to earnings		11.5			16.7			11.1			14.7			16.6
Price to book		2.6			3.8			3.3			3.6			2.9
Earnings to fixed charges		24.7x			21.3x			27.1x			18.8x			13.2x
Net premiums earned	$	14,117.9		$	13,764.4		$	13,169.9		$	11,341.0		$	8,883.5
Total revenues		14,786.4			14,303.4			13,782.1			11,892.0			9,294.4
Underwriting margins:1
Personal Lines		12.3	%		11.0	%		14.1	%		12.1	%		7.5	%
Commercial Auto		19.8	%		17.9	%		21.1	%		17.5	%		9.1	%
Other indemnity2	NM			NM			NM			NM				7.2	%
Total underwriting operations		13.3	%		11.9	%		14.9	%		12.7	%		7.6	%
Net income	$	1,647.5		$	1,393.9		$	1,648.7		$	1,255.4		$	667.3
Per share (diluted basis)		2.10			1.74			1.91			1.42			.75
Dividends per share		.0325			.0300			.0275			.0250			.0240
Number of people employed		27,778			28,336			27,085			25,834			22,974

All share and per share amounts were adjusted for the May 18, 2006, 4-for-1 stock split and the April 22, 2002, 3-for-1 stock split.

1	Underwriting margins are calculated as pretax underwriting profit (loss), as defined in Note 9 – Segment Information, as a percent of net premiums earned.
2	In 2003, we ceased writing business for our lender’s collateral protection program. As a result, underwriting margin is not meaningful (NM) for our other indemnity businesses due to the insignificant amount of premiums earned by such businesses after that date.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES APP.-A-48

(millions–except ratios, per share amounts
and number of people employed)	2001			2000			1999			1998			1997
Insurance Companies Selected Financial Information and Operating Statistics—Statutory Basis
Net premiums written	$	7,260.1		$	6,196.1		$	6,124.7		$	5,299.7		$	4,665.1
Growth		17	%		1	%		16	%		14	%		36	%
Policyholders’ surplus	$	2,647.7		$	2,177.0		$	2,258.9		$	2,029.9		$	1,722.9
Net premiums written to policyholders’ surplus ratio		2.7			2.8			2.7			2.6			2.7
Loss and loss adjustment expense ratio		73.6			83.2			75.0			68.5			71.1
Underwriting expense ratio		21.1			21.0			22.1			22.4			20.7
Statutory combined ratio		94.7			104.2			97.1			90.9			91.8
Selected Consolidated Financial Information—GAAP Basis
Total assets	$	11,122.4		$	10,051.6		$	9,704.7		$	8,463.1		$	7,559.6
Total shareholders’ equity		3,250.7			2,869.8			2,752.8			2,557.1			2,135.9
Common Shares outstanding		881.2			882.2			877.1			870.5			867.2
Common Share price:
High	$	12.65		$	9.25		$	14.52		$	14.33		$	10.07
Low		6.84			3.75			5.71			7.83			5.13
Close (at December 31)		12.44			8.64			6.09			14.11			9.99
Market capitalization	$	10,958.6		$	7,616.8		$	5,345.4		$	12,279.7		$	8,667.0
Book value per Common Share		3.69			3.25			3.14			2.94			2.46
Return on average common shareholders’ equity		13.5	%		1.7	%		10.9	%		19.3	%		20.9	%
Debt outstanding	$	1,095.7		$	748.8		$	1,048.6		$	776.6		$	775.9
Ratios:
Debt to total capital		25.2	%		20.7	%		27.6	%		23.3	%		26.6	%
Price to earnings		27.2			164.5			18.5			27.7			22.6
Price to book		3.4			2.7			1.9			4.8			4.1
Earnings to fixed charges		10.7x			1.3x			5.7x			10.2x			9.2x
Net premiums earned	$	7,161.8		$	6,348.4		$	5,683.6		$	4,948.0		$	4,189.5
Total revenues		7,488.2			6,771.0			6,124.2			5,292.4			4,608.2
Underwriting margins:1
Personal Lines		4.5	%		(5.2	)%		1.2	%		7.9	%		6.3	%
Commercial Auto		8.3	%		3.3	%		8.4	%		17.6	%		10.9	%
Other indemnity2		7.0	%		13.6	%		10.8	%		8.6	%		7.9	%
Total underwriting operations		4.8	%		(4.4	)%		1.7	%		8.4	%		6.6	%
Net income	$	411.4		$	46.1		$	295.2		$	456.7		$	400.0
Per share (diluted basis)		.46			.05			.33			.51			.44
Dividends per share		.0233			.0225			.0218			.0208			.0200
Number of people employed		20,442			19,490			18,753			15,735			14,126

APP.-A-49 THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

Quantitative Market Risk Disclosures

(unaudited)

Quantitative market risk disclosures are only presented for market risk categories when risk is considered material. Materiality is determined based on the fair value of the financial instruments at December 31, 2006, and the potential for near-term losses from reasonably possible near-term changes in market rates or prices.

Other Than Trading Financial Instruments
Financial instruments subject to interest rate risk were:

	Fair Value
	-200 bps		-100 bps				+100 bps		+200 bps
(millions)	Change		Change		Actual		Change		Change
U.S. government obligations	$	3,523.1	$	3,358.1	$	3,203.4	$	3,058.3	$	2,921.8
State and local government obligations		3,332.1		3,223.0		3,119.7		3,021.7		2,928.8
Asset-backed securities		2,497.0		2,445.4		2,390.1		2,335.4		2,285.0
Corporate securities		1,199.0		1,155.1		1,113.8		1,074.8		1,037.8
Preferred stocks		1,839.1		1,809.3		1,781.0		1,754.1		1,728.3
Other debt securities1		139.0		135.4		131.9		128.7		125.5
Short-term investments		581.2		581.2		581.2		581.2		581.2
Balance as of December 31, 2006	$	13,110.5	$	12,707.5	$	12,321.1	$	11,954.2	$	11,608.4
Balance as of December 31, 2005	$	13,008.3	$	12,604.0	$	12,215.8	$	11,850.3	$	11,506.0

¹  Includes $99.1 million in mandatory redeemable preferred stocks.

Exposure to risk is represented in terms of changes in fair value due to selected hypothetical movements in market rates. Bonds and preferred stocks are individually priced to yield to the worst case scenario, which includes any issuer-specific features, such as a call option. Asset-backed securities, including state and local government housing securities, are priced assuming deal-specific prepayment scenarios, considering the deal structure, prepayment penalties, yield maintenance agreements and the underlying collateral.

Financial instruments subject to equity market risk were:

	Fair		Hypothetical Market Changes
(millions)	Value		+10%		-10%
Common equities as of December 31, 2006	$	2,368.1	$	2,604.9	$	2,131.3
Common equities as of December 31, 2005	$	2,058.9	$	2,264.8	$	1,853.0

The model represents the estimated value of our common equity portfolio given a +/- 10% change in the market, based on the common stock portfolio’s weighted average beta of 1.0. The beta is derived from recent historical experience, using the S&P 500 as the market surrogate. The historical relationship of the common stock portfolio’s beta to the S&P 500 is not necessarily indicative of future correlation, as individual company or industry factors may affect price movement. Betas are not available for all securities. In such cases, the change in fair value reflects a direct +/- 10% change; the number of securities without betas is approximately 1%, and the remaining 99% of the equity portfolio is indexed to the Russell 1000.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES APP.-A-50

As an additional supplement to the sensitivity analysis, we present results from a value-at-risk (VaR) analysis used to estimate and quantify our market risks. VaR is the expected loss, for a given confidence level, of our portfolio due to adverse market movements in an ordinary market environment. The VaR estimates below are used as a risk measurement and reflect an estimate of potential reductions in fair value of our portfolio for the following 22 and 66 trading days (one- and three-month intervals) at the 95^th percentile loss. We use the 22-day VaR to measure exposure to short-term volatility and the 66-day VaR for longer-term contingency capital planning.

	December 31,			September 30,			June 30,			March 31,			December 31,
(millions)	2006			2006			2006			2006			2005
22-day VaR
Fixed-income portfolio	$	(102.1	)	$	(95.9	)	$	(119.3	)	$	(107.2	)	$	(106.0	)
% of portfolio		(.8	)%		(.8	)%		(1.0	)%		(.9	)%		(.9	)%
% of shareholders’ equity		(1.5	)%		(1.4	)%		(1.9	)%		(1.7	)%		(1.7	)%
Common equity portfolio	$	(83.4	)	$	(98.3	)	$	(129.1	)	$	(83.8	)	$	(84.6	)
% of portfolio		(3.5	)%		(4.4	)%		(6.1	)%		(3.9	)%		(4.1	)%
% of shareholders’ equity		(1.2	)%		(1.5	)%		(2.0	)%		(1.3	)%		(1.4	)%
Total portfolio	$	(128.1	)	$	(148.1	)	$	(189.5	)	$	(144.9	)	$	(137.4	)
% of portfolio		(.9	)%		(1.0	)%		(1.3	)%		(1.0	)%		(1.0	)%
% of shareholders’ equity		(1.9	)%		(2.2	)%		(3.0	)%		(2.3	)%		(2.2	)%
66-day VaR
Fixed-income portfolio	$	(174.7	)	$	(164.2	)	$	(204.5	)	$	(183.9	)	$	(181.9	)
% of portfolio		(1.4	)%		(1.3	)%		(1.6	)%		(1.5	)%		(1.5	)%
% of shareholders’ equity		(2.6	)%		(2.4	)%		(3.2	)%		(2.9	)%		(3.0	)%
Common equity portfolio	$	(138.5	)	$	(162.6	)	$	(213.7	)	$	(138.5	)	$	(140.7	)
% of portfolio		(5.8	)%		(7.3	)%		(10.1	)%		(6.5	)%		(6.8	)%
% of shareholders’ equity		(2.0	)%		(2.4	)%		(3.3	)%		(2.2	)%		(2.3	)%
Total portfolio	$	(218.8	)	$	(248.2	)	$	(318.4	)	$	(244.3	)	$	(230.9	)
% of portfolio		(1.5	)%		(1.7	)%		(2.2	)%		(1.7	)%		(1.6	)%
% of shareholders’ equity		(3.2	)%		(3.7	)%		(5.0	)%		(3.9	)%		(3.8	)%

Our VaR results are based on a stochastic simulation where all securities are marked to market under 10,000 scenarios. Fixed-income securities are priced off simulated term structures and risk is calculated based on the volatilities and correlations of the points on those curves. Equities are priced off each security’s individual pricing history. The model uses an exponentially weighted moving average methodology to forecast variance and covariance over a two-year time horizon for each security. In estimating the parameters of the forecast model, the sample mean is set to zero and the weight applied in the exponential moving average forecasts are set at .97, making the model more sensitive to recent volatility and correlations. The VaR of the total investment portfolio is less than the sum of the two components (fixed income and common equity) due to the benefit of diversification.

     The slight decrease in the 22-day and 66-day VaR from December 31, 2005 to December 31, 2006, primarily results from lower volatility in the equity market in 2006. Volatility in the fixed-income market was relatively unchanged.

APP.-A-51 THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

Claims Payment Patterns

(unaudited)

The Progressive Group of Insurance Companies is primarily an insurer of automobiles and recreational vehicles owned by individuals, and trucks owned by small businesses. As such, our claims liabilities, by their very nature, are short in duration. Since our incurred losses consist of both payments and changes in the reserve estimates, it is important to understand our paid development patterns. The charts below show our auto claims payment patterns, reflecting both dollars and claims counts paid, for auto physical damage and bodily injury claims, as well as on a total auto basis. Since physical damage claims pay out so quickly, the chart is calibrated on a monthly basis, as compared to a quarterly basis for the bodily injury and total auto payments.

Physical Damage

Bodily Injury

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES APP.-A-52

Total Auto

Note: The above graphs are presented on an accident period basis and are based on three years of actual experience for physical damage and nine years for bodily injury and total auto.

APP.-A-53 THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

Quarterly Financial and Common Share Data

(unaudited)

(millions — except per share amounts)

			Net Income				Stock Price1
	Operating				Per								Rate of			Dividends
Quarter	Revenues2		Total		Share3		High		Low		Close		Return4			Per Share
2006
1	$	3,508.9	$	436.6	$	.55	$	30.09	$	25.25	$	26.07				$	.00750
2		3,572.3		400.4		.51		27.86		25.25		25.71					.00750
3		3,551.6		409.6		.53		25.84		22.18		24.54					.00875
4		3,515.5		400.9		.53		25.54		22.19		24.22					.00875
	$	14,148.3	$	1,647.5	$	2.10	$	30.09	$	22.18	$	24.22		(17.0	)%	$	.03250
2005
1	$	3,361.2	$	412.7	$	.51	$	23.12	$	20.35	$	22.94				$	.00750
2		3,464.1		394.3		.49		25.22		21.88		24.70					.00750
3		3,488.6		305.3		.38		26.83		23.43		26.19					.00750
4		3,490.7		281.6		.35		31.23		25.76		29.20					.00750
	$	13,804.6	$	1,393.9	$	1.74	$	31.23	$	20.35	$	29.20		37.9	%	$	.03000
2004
1	$	3,106.1	$	460.0	$	.52	$	22.27	$	20.17	$	21.90				$	.00625
2		3,245.9		386.3		.44		22.99		20.33		21.33					.00625
3		3,289.8		388.9		.44		21.40		18.28		21.19					.00750
4		3,576.6		413.5		.50		24.32		20.75		21.21					.00750
	$	13,218.4	$	1,648.7	$	1.91	$	24.32	$	18.28	$	21.21		1.6	%	$	.02750

All per share amounts and stock prices were adjusted for the May 18, 2006, 4-for-1 stock split.

1	Prices as reported on the consolidated transaction reporting system. Progressive’s Common Shares are listed on the New York Stock Exchange under the symbol PGR.
2	Represents premiums earned plus service revenues.
3	Presented on a diluted basis. The sum may not equal the total because the average equivalent shares differ in the periods.
4	Represents annual rate of return, including quarterly dividend reinvestment.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES APP.-A-54

Net Premiums Written by State

(unaudited)

(millions)	2006				2005				2004				2003				2002
Florida	$	1,811.5	12.8	%	$	1,774.2	12.7	%	$	1,522.6	11.4	%	$	1,338.2	11.2	%	$	1,040.7	11.0	%
Texas		1,096.0	7.8			1,126.8	8.0			1,181.1	8.8			1,126.4	9.4			858.6	9.1
California		1,085.1	7.7			982.8	7.0			892.7	6.7			736.2	6.2			550.7	5.8
New York		930.6	6.6			968.8	6.9			935.7	7.0			808.3	6.8			662.0	7.0
Georgia		751.0	5.3			749.5	5.4			733.2	5.5			614.4	5.2			485.3	5.1
Ohio		693.7	4.9			736.0	5.3			754.2	5.6			712.1	6.0			619.7	6.6
Pennsylvania		642.1	4.5			659.1	4.7			634.4	4.7			589.3	4.9			491.0	5.2
All other		7,122.0	50.4			7,010.4	50.0			6,724.2	50.3			5,988.5	50.3			4,744.0	50.2
Total	$	14,132.0	100.0	%	$	14,007.6	100.0	%	$	13,378.1	100.0	%	$	11,913.4	100.0	%	$	9,452.0	100.0	%

APP.-A-55 THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

Directors

Charles A. Davis^3,5,6
Chief Executive Officer,
Stone Point Capital LLC
(private equity investing)

Stephen R. Hardis^2,4,5,6
Lead Director,
Axcelis Technologies, Inc.
(manufacturing)

Bernadine P. Healy, M.D.^1,6
Health Editor and Medical Columnist,
U.S. News & World Report
(publishing)

Jeffrey D. Kelly^2,4,6
Vice Chairman
and Chief Financial Officer,
National City Corporation
(commercial banking)

Abby F. Kohnstamm⁶
President and Chief Executive Officer,
Abby F. Kohnstamm & Associates, Inc.
(marketing consulting)

Philip A. Laskawy^1,6
formerly Chairman and
Chief Executive Officer,
Ernst & Young LLP
(professional services)

Peter B. Lewis^2,6,7
Chairman of the Board

Norman S. Matthews^3,5,6
Consultant,
formerly President,
Federated Department Stores, Inc.
(retailing)

Patrick H. Nettles, Ph.D.^1,6
Executive Chairman,
Ciena Corporation
(telecommunications)

Glenn M. Renwick²
President and Chief Executive Officer

Donald B. Shackelford^4,6
Chairman,
Fifth Third Bank, Central Ohio
(commercial banking)

Bradley T. Sheares, Ph.D. ^3,6
Chief Executive Officer,
Reliant Pharmaceuticals, Inc.
(pharmaceuticals)

1	Audit Committee member
2	Executive Committee member
3	Compensation Committee member
4	Investment and Capital Committee member
5	Nominating and Governance Committee member
6	Independent director
7	Non-executive chairman

Corporate Officers

Glenn M. Renwick
President and Chief Executive Officer

W. Thomas Forrester
Vice President and Chief Financial Officer
(retiring effective March 2007)

Charles E. Jarrett
Vice President, Secretary
and Chief Legal Officer

Thomas A. King
Vice President and Treasurer

Jeffrey W. Basch
Vice President and Chief Accounting Officer

Peter B. Lewis
Chairman of the Board
(non-executive)

Other Executive Officers

John A. Barbagallo
Agency Group President

William M. Cody
Chief Investment Officer

Brian C. Domeck
Chief Financial Officer
(beginning March 2007)

Susan Patricia Griffith
Chief Human Resource Officer

Brian J. Passell
Claims Group President

John P. Sauerland
Direct Group President

Brian A. Silva
Commercial Auto Group President

Raymond M. Voelker
Chief Information Officer

Contact Non-Management Directors Interested parties have the ability to contact non-management directors as a group by sending a written communication clearly addressed to the non-management directors and sent to any of the following:

Peter B. Lewis, Chairman of the Board, The Progressive Corporation, 6300 Wilson Mills Road, Mayfield Village, Ohio 44143 or e-mail: peter_lewis@progressive.com.

     Philip A. Laskawy, Chairman of the Audit Committee, The Progressive Corporation, c/o Ernst & Young, 5 Times Square, New York, New York 10036 or e-mail: philip_laskawy@progressive.com.

     Charles E. Jarrett, Corporate Secretary, The Progressive Corporation, 6300 Wilson Mills Road, Mayfield Village, Ohio 44143 or e-mail: chuck_jarrett@progressive.com.

     The recipient will forward communications so received to the non-management directors.

Accounting Complaint Procedure Any employee or other interested party with a complaint or concern regarding accounting, internal accounting controls or auditing matters relating to Progressive may report such complaint or concern directly to the Chairman of the Audit Committee, as follows: Philip A. Laskawy, Chairman of the Audit Committee, c/o Ernst & Young, 5 Times Square, New York, New York 10036, Phone: 212-773-1300, e-mail: philip_laskawy@progressive.com.

     Any such complaint or concern also may be reported anonymously over the following toll-free Alert Line: 1-800-683-3604. Progressive will not retaliate against any individual by reason of his or her having made such a complaint or reported such a concern in good faith. View the complete procedures at progressive.com/governance.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES APP.-A-56

Whistleblower Protections Progressive will not retaliate against any officer or employee of Progressive because of any lawful act done by the employee to provide information or otherwise assist in investigations regarding conduct that the employee reasonably believes to be a violation of Federal Securities Laws or of any rule or regulation of the Securities and Exchange Commission or Federal Securities Laws relating to fraud against shareholders. View the complete Whistleblower Protections at progressive.com/governance.

Annual Meeting The Annual Meeting of Shareholders will be held at the offices of The Progressive Corporation, 6671 Beta Drive, Mayfield Village, Ohio 44143 on April 20, 2007, at 10 a.m. eastern time. There were 3,921 shareholders of record on December 31, 2006.

Principal Office The principal office of The Progressive Corporation is at 6300 Wilson Mills Road, Mayfield Village, Ohio 44143. Phone: 440-461-5000
Web site: progressive.com

Customer Service and Claims Reporting
For 24-Hour Customer Service or to report a claim, contact:

PERSONAL LINES

Private Passenger Auto/Special Lines
Agency Business
Progressive^®Drive^® Insurance/
Progressive Motorcycle,
Progressive RV, etc.
1-800-925-2886
driveinsurance.com

Direct Business
Progressive Direct^®/
Progressive Motorcycle,
Progressive RV, etc.
1-800-PROGRESSIVE (1-800-776-4737)
progressive.com

COMMERCIAL AUTO

Agency Business
1-800-444-4487
progressivecommercial.com

Direct Business
1-800-895-2886
progressivecommercial.com

Common Shares The Progressive Corporation’s Common Shares (symbol PGR) are traded on the New York Stock Exchange. Progressive announced a change to an annual dividend policy starting in 2007. For 2007, the record date for the dividend is expected to be in December 2007, subject to Board approval, with payment expected in February 2008.

Corporate Governance Progressive’s Corporate Governance Guidelines and Board Committee Charters are available at: progressive.com/governance, or may be requested in print by writing to: The Progressive Corporation, Investor Relations, 6300 Wilson Mills Road, Box W33, Mayfield Village, Ohio 44143.

Charitable Contributions Progressive does not contribute or provide financial support to any outside organizations. However, Progressive contributes annually to The Progressive Insurance Foundation, which provides: (i) financial support to the Insurance Institute for Highway Safety to further its work in reducing the human trauma and economic costs of auto accidents, and (ii) matching funds to eligible 501(c)(3) charitable organizations to which Progressive employees contribute.

Counsel Baker & Hostetler LLP, Cleveland, Ohio

Transfer Agent and Registrar

Registered Shareholders: If your Progressive shares are registered in your name, contact National City Bank regarding questions or changes to your account: National City Bank, Dept. 5352, Shareholder Services Operations, P.O. Box 92301, Cleveland, Ohio 44193-0900. Phone: 1-800-622-6757 or e-mail: shareholder.inquiries@nationalcity.com.

Beneficial Shareholders: If your Progressive shares are held in a brokerage account, contact your broker directly regarding questions or changes to your account.

Shareholder/Investor Relations Progressive does not maintain a mailing list for distribution of shareholders’ reports. To view Progressive’s publicly filed documents, shareholders can access our Web site: progressive.com/sec. To view our earnings and other releases, access progressive.com/investors.

To request copies of Progressive’s publicly filed documents, write to: The Progressive Corporation, Investor Relations, 6300 Wilson Mills Road, Box W33, Mayfield Village, Ohio 44143, e-mail: investor_relations@progressive.com or call: 440-395-2258.

For financial-related information, call: 440-395-2222 or e-mail: investor_relations@progressive.com.

For all other Company information, call: 440-461-5000 or e-mail: webmaster@progressive.com.

Registered Trademarks Progressive^®and Drive^®are registered trademarks. Net Promoter^®is a registered trademark of Satmetrix Systems, Inc.

Interactive Annual Report The Progressive Corporation’s 2006 Annual Report, in an interactive format, can be found at: progressive.com/annualreport.

^©2007 The Progressive Corporation

APP.-A-57 THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

EX-21

Exhibit No. 21

SUBSIDIARIES OF THE PROGRESSIVE CORPORATION

	Jurisdiction
Name of Subsidiary	of Incorporation
Drive Insurance Holdings, Inc.	Delaware
Bayside Underwriters Insurance Agency, Inc.	Florida
Drive New Jersey Insurance Company	New Jersey
Drive Resource Services Company	Ohio
Progressive American Insurance Company	Florida
Progressive Bayside Insurance Company	Florida
Progressive Casualty Insurance Company	Ohio
PC Investment Company	Delaware
Progressive Gulf Insurance Company	Ohio
Progressive Specialty Insurance Company	Ohio
Trussville/Cahaba, AL, LLC	Ohio
Progressive Classic Insurance Company	Wisconsin
Progressive DLP Corp.	Ohio
Progressive Hawaii Insurance Corp.	Ohio
Progressive Michigan Insurance Company	Michigan
Progressive Mountain Insurance Company	Ohio
Progressive Northeastern Insurance Company	New York
Progressive Northern Insurance Company	Wisconsin
Progressive Northwestern Insurance Company	Ohio
Progressive Preferred Insurance Company	Ohio
Progressive Security Insurance Company	Louisiana
Progressive Southeastern Insurance Company	Indiana
Progressive West Insurance Company	Ohio
United Financial Insurance Agency, Inc.	Washington
Garden Sun Insurance Services, Inc.	Hawaii
Insurance Confirmation Services, Inc.	Delaware
Lakeside Insurance Agency, Inc.	Ohio
Pacific Motor Club	California
PCIC Canada Holdings, Ltd.	Canada
Progny Agency, Inc.	New York
Progressive Adjusting Company, Inc.	Ohio
Progressive Capital Management Corp.	New York
Progressive Commercial Holdings, Inc.	Delaware
Artisan and Truckers Casualty Company	Wisconsin
Commercial Resource Services Company	Ohio
National Continental Insurance Company	New York
Progressive Express Insurance Company	Florida
United Financial Casualty Company	Ohio
Progressive Professional Insurance Company	Ohio
Progressive Corporate Support, Inc.	Ohio

	Jurisdiction
Name of Subsidiary	of Incorporation
Progressive Direct Holdings, Inc.	Delaware
Midland Financial Group, Inc.	Ohio
Midland Risk Services, Inc.	Tennessee
Progressive Advanced Insurance Company	Ohio
Mountain Laurel Assurance Company	Ohio
Progressive Auto Pro Insurance Agency, Inc.	Florida
Progressive Choice Insurance Company	Ohio
Progressive Direct Insurance Company	Ohio
Gadsden, AL, LLC	Ohio
Progressive Direct Resource Services Company	Ohio
Progressive Freedom Insurance Company	New Jersey
Progressive Garden State Insurance Company	New Jersey
Progressive Marathon Insurance Company	Michigan
Progressive Max Insurance Company	Ohio
Progressive Paloverde Insurance Company	Indiana
Progressive Premier Insurance Company of Illinois	Ohio
Progressive Select Insurance Company	Florida
Progressive Specialty Insurance Agency, Inc.	Ohio
Progressive Universal Insurance Company	Wisconsin
Progressive Insurance Agency, Inc.	Ohio
Progressive Investment Company, Inc.	Delaware
Progressive Premium Budget, Inc.	Ohio
Progressive RSC, Inc.	Ohio
Progressive Vehicle Service Company	Ohio
Silver Key Insurance Agency, Inc.	Nevada
Village Transport Corp.	Delaware
Wilson Mills Land Co.	Ohio

Each subsidiary is wholly owned by its parent.

EX-24

Exhibit No. 24

POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities, to sign and file with the Securities and Exchange Commission the Annual Report on Form 10-K of The Progressive Corporation for the year 2006, and any and all amendments relating thereto and other documents in connection therewith, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary and requisite to be done in connection with the foregoing, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their respective substitutes, may lawfully do or cause to be done by virtue hereof.

     IN WITNESS WHEREOF, I have hereunto subscribed my name in the capacity(ies) set forth below this 21st day of February, 2007.

Signature	Position(s) with The Progressive Corporation
/s/ Peter B. Lewis Peter B. Lewis	Director and Chairman of the Board

POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities, to sign and file with the Securities and Exchange Commission the Annual Report on Form 10-K of The Progressive Corporation for the year 2006, and any and all amendments relating thereto and other documents in connection therewith, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary and requisite to be done in connection with the foregoing, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their respective substitutes, may lawfully do or cause to be done by virtue hereof.

     IN WITNESS WHEREOF, I have hereunto subscribed my name in the capacity(ies) set forth below this 22nd day of February, 2007.

Signature	Position(s) with The Progressive Corporation
/s/ Glenn M. Renwick	Director, President and Chief Executive Officer
Glenn M. Renwick

POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities, to sign and file with the Securities and Exchange Commission the Annual Report on Form 10-K of The Progressive Corporation for the year 2006, and any and all amendments relating thereto and other documents in connection therewith, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary and requisite to be done in connection with the foregoing, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their respective substitutes, may lawfully do or cause to be done by virtue hereof.

     IN WITNESS WHEREOF, I have hereunto subscribed my name in the capacity(ies) set forth below this 22nd day of February, 2007.

Signature	Position(s) with The Progressive Corporation
/s/ W. Thomas Forrester	Vice President and Chief Financial Officer
W. Thomas Forrester

POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities, to sign and file with the Securities and Exchange Commission the Annual Report on Form 10-K of The Progressive Corporation for the year 2006, and any and all amendments relating thereto and other documents in connection therewith, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary and requisite to be done in connection with the foregoing, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their respective substitutes, may lawfully do or cause to be done by virtue hereof.

     IN WITNESS WHEREOF, I have hereunto subscribed my name in the capacity(ies) set forth below this 22nd day of February, 2007.

	Position(s) with
Signature	The Progressive Corporation
/s/ Jeffrey W. Basch	Vice President and Chief Accounting Officer
Jeffrey W. Basch

POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities, to sign and file with the Securities and Exchange Commission the Annual Report on Form 10-K of The Progressive Corporation for the year 2006, and any and all amendments relating thereto and other documents in connection therewith, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary and requisite to be done in connection with the foregoing, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their respective substitutes, may lawfully do or cause to be done by virtue hereof.

     IN WITNESS WHEREOF, I have hereunto subscribed my name in the capacity(ies) set forth below this 22nd day of February, 2007.

Signature	Position(s) with The Progressive Corporation
/s/ Charles A. Davis	Director
Charles A. Davis

POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities, to sign and file with the Securities and Exchange Commission the Annual Report on Form 10-K of The Progressive Corporation for the year 2006, and any and all amendments relating thereto and other documents in connection therewith, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary and requisite to be done in connection with the foregoing, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their respective substitutes, may lawfully do or cause to be done by virtue hereof.

     IN WITNESS WHEREOF, I have hereunto subscribed my name in the capacity(ies) set forth below this 19th day of February, 2007.

Signature	Position(s) with The Progressive Corporation
/s/ Stephen R. Hardis	Director
Stephen R. Hardis

POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities, to sign and file with the Securities and Exchange Commission the Annual Report on Form 10-K of The Progressive Corporation for the year 2006, and any and all amendments relating thereto and other documents in connection therewith, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary and requisite to be done in connection with the foregoing, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their respective substitutes, may lawfully do or cause to be done by virtue hereof.

     IN WITNESS WHEREOF, I have hereunto subscribed my name in the capacity(ies) set forth below this 22nd day of February, 2007.

	Position(s) with
Signature	The Progressive Corporation
/s/ Bernadine P. Healy	Director
Bernadine P. Healy, M.D.

POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities, to sign and file with the Securities and Exchange Commission the Annual Report on Form 10-K of The Progressive Corporation for the year 2006, and any and all amendments relating thereto and other documents in connection therewith, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary and requisite to be done in connection with the foregoing, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their respective substitutes, may lawfully do or cause to be done by virtue hereof.

     IN WITNESS WHEREOF, I have hereunto subscribed my name in the capacity(ies) set forth below this 20th day of February, 2007.

Signature	Position(s) with The Progressive Corporation
/s/ Jeffrey D. Kelly	Director
Jeffrey D. Kelly

POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities, to sign and file with the Securities and Exchange Commission the Annual Report on Form 10-K of The Progressive Corporation for the year 2006, and any and all amendments relating thereto and other documents in connection therewith, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary and requisite to be done in connection with the foregoing, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their respective substitutes, may lawfully do or cause to be done by virtue hereof.

     IN WITNESS WHEREOF, I have hereunto subscribed my name in the capacity(ies) set forth below this 20th day of February, 2007.

Signature	Position(s) with The Progressive Corporation
/s/ Abby F. Kohnstamm	Director
Abby F. Kohnstamm

POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities, to sign and file with the Securities and Exchange Commission the Annual Report on Form 10-K of The Progressive Corporation for the year 2006, and any and all amendments relating thereto and other documents in connection therewith, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary and requisite to be done in connection with the foregoing, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their respective substitutes, may lawfully do or cause to be done by virtue hereof.

     IN WITNESS WHEREOF, I have hereunto subscribed my name in the capacity(ies) set forth below this 20th day of February, 2007.

Signature	Position(s) with The Progressive Corporation
/s/ Philip A. Laskawy	Director
Philip A. Laskawy

POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities, to sign and file with the Securities and Exchange Commission the Annual Report on Form 10-K of The Progressive Corporation for the year 2006, and any and all amendments relating thereto and other documents in connection therewith, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary and requisite to be done in connection with the foregoing, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their respective substitutes, may lawfully do or cause to be done by virtue hereof.

     IN WITNESS WHEREOF, I have hereunto subscribed my name in the capacity(ies) set forth below this 20th day of February, 2007.

Signature	Position(s) with The Progressive Corporation
/s/ Norman S. Matthews	Director
Norman S. Matthews

POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities, to sign and file with the Securities and Exchange Commission the Annual Report on Form 10-K of The Progressive Corporation for the year 2006, and any and all amendments relating thereto and other documents in connection therewith, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary and requisite to be done in connection with the foregoing, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their respective substitutes, may lawfully do or cause to be done by virtue hereof.

     IN WITNESS WHEREOF, I have hereunto subscribed my name in the capacity(ies) set forth below this 22nd day of February, 2007.

Signature	Position(s) with The Progressive Corporation
/s/ Patrick H. Nettles, Ph.D.	Director
Patrick H. Nettles, Ph.D.

POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities, to sign and file with the Securities and Exchange Commission the Annual Report on Form 10-K of The Progressive Corporation for the year 2006, and any and all amendments relating thereto and other documents in connection therewith, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary and requisite to be done in connection with the foregoing, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their respective substitutes, may lawfully do or cause to be done by virtue hereof.

     IN WITNESS WHEREOF, I have hereunto subscribed my name in the capacity(ies) set forth below this 20th day of February, 2007.

Signature	Position(s) with The Progressive Corporation
/s/ Donald B. Shackelford	Director
Donald B. Shackelford

POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint Charles E. Jarrett, Dane A. Shrallow and David M. Coffey, and each of them, my true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities, to sign and file with the Securities and Exchange Commission the Annual Report on Form 10-K of The Progressive Corporation for the year 2006, and any and all amendments relating thereto and other documents in connection therewith, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary and requisite to be done in connection with the foregoing, as fully to all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their respective substitutes, may lawfully do or cause to be done by virtue hereof.

     IN WITNESS WHEREOF, I have hereunto subscribed my name in the capacity(ies) set forth below this 22nd day of February, 2007.

Signature	Position(s) with The Progressive Corporation
/s/ Bradley T. Sheares	Director
Bradley T. Sheares

EX-31.1

Exhibit No. 31.1

CERTIFICATION

I, Glenn M. Renwick, certify that:

1.	I have reviewed this annual report on Form 10-K of The Progressive Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 28, 2007	/s/ Glenn M. Renwick
	Glenn M. Renwick
	President and Chief Executive Officer

EX-31.2

Exhibit No. 31.2

CERTIFICATION

I, W. Thomas Forrester, certify that:

1.	I have reviewed this annual report on Form 10-K of The Progressive Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 28, 2007	/s/ W. Thomas Forrester
	W. Thomas Forrester
	Vice President and Chief Financial Officer

EX-32.1

Exhibit No. 32.1

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     I, Glenn M. Renwick, President and Chief Executive Officer of The Progressive Corporation (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Annual Report on Form 10-K of the Company for the period ended December 31, 2006 (the “Report”), which this certification accompanies, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Glenn M. Renwick  

Glenn M. Renwick 

President and Chief Executive Officer 

February 28, 2007 

EX-32.2

Exhibit No. 32.2

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     I, W. Thomas Forrester, Vice President and Chief Financial Officer of The Progressive Corporation (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Annual Report on Form 10-K of the Company for the period ended December 31, 2006 (the “Report”), which this certification accompanies, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ W. Thomas Forrester  

W. Thomas Forrester 

Vice President and Chief Financial Officer 

February 28, 2007 

EX-99

Exhibit No. 99

LETTER TO SHAREHOLDERS

An Auto Insurance Commercial Every Fourteen Seconds! This was an interesting factoid gleaned recently during the course of evaluating advertising agencies. Without validating the claim, directionally it captures one of the most observable macro changes in our industry over the past few years. In 2006, few consumers escaped an auto insurer’s message as just about every conceivable impression space has been used to capture consumers’ interest. Why now? What’s changed?

Three years ago, I wrote that 2003 would be the second year of underwriting profitability in the auto insurance industry for the past 25. Since then, the industry has gone on to four consecutive years of underwriting profitability. Based on where we start 2007, the odds look good for a “five-peat” (I hope that’s not trademarked!). With favorable underwriting results and a stable outlook, the competition for consumers has increased dramatically. With consumers in demand, price pressure was sure to follow. While simple characterizations about pricing don’t capture individual market and segment level detail, a second notable macro change is that the industrywide earned premium for 2006 may well be lower than 2005, a first in at least 25 years.

Under these market conditions 2006 was a good, not great, year for Progressive. Our calendar-year underwriting profit margin remained exceptionally strong at 13.3%, still far outstripping our long-term target of 4%. Combined with investment returns for the year, net income was up 18% over last year to $1.65 billion, or up 21% to $2.10 per share. Our return on shareholders’ equity was 25.3%, consistent with our five-year average. Less exciting was the slow growth in premiums, which on a written and earned basis grew about 1% and 3%, respectively. Our growth in policies, my preferred measure, tells much the same story, with our Personal Lines book increasing 3% and Commercial Auto about 7%. I’ve said many times that our culture thrives on profitable growth, and while understandable given market conditions, these growth numbers and trends do not meet our expectations.

MARKET CONDITIONS

The well-documented reduction in claims frequency over what is now several years is clearly the underlying driver of industrywide favorable results and limited upward pressure on premiums. At this time last year, I reported that our view continued to be that we would slowly return to more normal operating margins by allowing expected increases in severity, and potentially frequency, to absorb the margin in excess of our target rather than immediately price it away. That forecast, at least in the months that followed, proved to be incorrect. Since no significant change in frequency or notable acceleration in severity appeared to emerge, our view of the future and our game plan needed re-evaluation. At the annual investors’ meeting, I announced that our efforts to fully explain and calibrate frequency reductions, while interesting, had been inconclusive. Obvious contributors of decreased frequency include vehicle safety, road design, driver education, more vehicles per household, and gas price fluctuations, but the amalgamation of these factors does not lend itself easily to a reliable forecast. What is more apparent to us now is that these drivers were, in many cases, structural changes and distinguishable from the observable insurance cycle. The prospect for future advances, especially in

vehicle safety, suggest that even further reductions in frequency and injury severity are plausible, though difficult to forecast.

We also assessed that failing to respond to stepped-up advertising efforts and the increased potential for our customers to search for lower prices in the marketplace when we could profitably meet or beat competitive offers, was no longer the correct strategy. While rates for a majority of consumers were relatively stable, marketing messaging was at an all-time high. Unlike other industries, our marketing efforts are unlikely to create increased overall demand, rather the expected outcome is more about moving around the available pool of consumers. Conscious that not all price reductions result in good trade-offs, we challenged ourselves to assess our market pricing relative to our goal of a 96 combined ratio and to make trade-offs that were acceptable and smart. Accordingly, we placed increased emphasis on competitive pricing for our current customers to ensure their likelihood of staying with us.

This reassessment of frequency and severity trends in our business means we will “play-it-as-we-see-it” and, more importantly, we are prepared to react quickly when we see a change. Our personal auto policy periods are short, providing greater flexibility to price correctly. Our controls and analytic review of profitability by sub-segments of our book are robust. We believe our ability to recognize trends is better than our ability to predict them, and our product management, technology and operational groups are all capable of reacting quickly. We are at our best when the market conditions require nimbleness. Each of our product lines has acted on the reassessed game plan and a review is provided in the Operations Summary section provided later in this report.

STRATEGIES AND EMPHASIS

Long before 2006 started, we recognized that growth, and the attendant issues in managing growth, would not be the primary focus for the year but rather we would give maximum effort to key initiatives we believed would shape the company for the future and, in some cases, provide a distinct competitive advantage. We concentrated on claims, developing a marketing culture and focusing on long-term customer satisfaction that will lead to increased retention.

Claims   Our emphasis on quality claims handling and superior customer experiences continues to meet our expectations, and I never tire of reporting that year-after-year our assessments on both measures exceed prior highs. Going forward, our emphasis
will be to ensure quality and service levels are maintained in balance with a cost structure that contributes to, and strengthens, our market competitiveness.

Our biggest strategic contribution to facilitating this balance took a huge step forward in 2006 with the opening of 29 new concierge claims centers. We now operate 53 such claims centers nationally in 41 metropolitan markets. Long-term followers of Progressive
know that this initiative has gone from concept, to market test, to a 20 operation burn-in period to, now, full-scale deployment. Each phase tested our thesis that this concept is capable of creating a really meaningful and valued change in the consumer experience, while reducing the frictional costs associated with claims handling, all while leveraging our scale to economic and competitive advantage. I could not be more pleased that we have now reached a market penetration where we can declare and advertise that this is

our primary approach to damage assessment and facilitation of repair in a growing number of markets. We will incorporate this distinctive offering as part of our ongoing advertising and brand communication.

Marketing Culture   I have said that as a business we are good at three things that really matter: allocating costs between consumers in ways that best match their expected costs; managing the claims and administrative costs that must ultimately be allocated; and providing superior consumer experiences. In 2006, we added the need to become equally good at marketing as we are in other skill areas to the “things-that-really-matter” list. We have good reason to be pleased with how the Progressive brand has developed in the last decade or so, but as with all things that show opportunity for improvement, we took stock of the relevance of our message and actions in today’s marketplace. In doing so, we saw opportunities to advance in many areas ranging from market intelligence gathering, to consumer feedback, to consistency of brand communication, to retailing of product features, to a more effective use of our skills and talents. In the latter part of 2006, we dedicated resources to take a pragmatic look at all marketing and brand activities, and to confirm or amend as necessary the foundation of our brand and consumer promise. A few highlights are important to share.

Perhaps the most significant finding is the powerful association consumers and agents have with the Progressive name. Our 2004 introduction of our Agency Business brand, Drive^® Insurance from Progressive had, for some, de-emphasized Progressive and created unintended separation from our claims service. In response, in February 2007, we announced that we repositioned the Progressive name in the name of all products we sell, allowing agents to more effectively leverage the power of the Progressive name as our single brand name. Progressive Drive Insurance is the name of the private passenger auto product sold through independent agents. This preserves the agent-specific product identity for our private passenger auto product that we desire, while increasing the emphasis on the Progressive name. Progressive Direct is the name used for the private passenger auto product sold directly by the company online and by phone. Progressive Commercial, Progressive Motorcycle, Progressive RV, Progressive Boat, etc. are the names of our non-private passenger auto products sold by agents and directly. A change of this nature was not something we expected so soon after market introduction of the Drive name, but with an increasing focus on our concierge claims service and other aspects of the Progressive brand, we wanted all customers to associate with the Progressive name and have our agents offer to their customers one more strong reason to buy Progressive.

The images in this report are those of real customers, reinforcing that a marketing culture for us starts with respect for the customer and an increased appreciation of the relevance of our product and what works and what doesn’t.

It’s about you. And it’s about time.^SM is our new advertising tag line, but it’s much more than that; it’s a positioning we will challenge ourselves to live up to.

Our work around reaffirming and challenging our brand promise to consumers includes ensuring that all our internal pricing and customer experience actions are consistent with the brand. Predictably, we have opportunities to improve. Pleasantly, we confirmed that we offer distinctive benefits that are truly valued by consumers, and greater opportunity to ensure we present our full story. With the assistance of new advertising and creative resources, we expect to advance quickly on closing identified gaps.

Retention   I have reported on retention activities and their importance for some time, and we have had some successes at improving internal processes and eliminating what last year I called “friendly fire.” That said, we have yet to make substantial progress in moving our retention measures and now realize additional root cause issues exist.

To quantify how we are doing on customer focus and retention efforts, we rolled out a companywide deployment of a “Net Promoter Score” in 2006. Underlying this concept is our belief that the strength of response to a single question, “How likely is it that you would recommend insurance from Progressive to a friend or colleague?,” can provide substantial amounts of information about those consumers who identify themselves as promoters, detractors or simply indifferent. A referral, or willingness to refer, speaks volumes about an individual’s attitude toward the company. When further sliced and diced to every possible consumer grouping, and correlated with the multitude of customer experiences we provide, this knowledge trumps the array of inconsistent and often annoying consumer surveys that preceded it. Moreover, it has created a companywide customer measure that has quickly taken on the importance of other key cultural imperatives. We no longer debate the academic pros and cons of internal and external survey data. Rather, we are committed to maximizing the benefits from this singular approach. From what we have seen so far, this is more than an interesting cosmetic measure; this is something that contributes to a marketing culture.

It is not an unfair characterization to suggest that Progressive’s culture and business practices, in part, reflect our beginnings and history as an acquirer of new customers with relatively short tenure. Transforming our focus to build on that acquisition culture and more effectively blend it with the necessary changes to retain customers for more of their insurable lives is proving to be more than just a subtle change. By our best estimates, Progressive has acquired more new customers per year than any auto insurer in recent years. Marketing to our existing customers, done well by many of our competitors, is an area of exponential internal attention, which in combination with our acquisition skill, provides for very exciting growth potential.

We believe we get many benefits by being a pure-play in auto insurance and have no plans to deviate from that course, but we are also aware of consumer needs for other products and the retention differences that come as a result of having multiple relationships with the same customer. During the year, we introduced a Progressive-underwritten Personal Umbrella product in our Agency Business and entered into a joint marketing relationship with Homesite Insurance Group for Agency and Direct business customers interested in a homeowners policy. The economic contribution of these ventures to date is far too small for comment, but both represent additional efforts to strengthen our ability to meet long-term customer needs.

Our Gainshare measure, highlighted last year as our way to calibrate the business gain made in any calendar year, for 2007 will reflect our internal emphasis on retention and the customer. The general construct remains the same, but two important tuning changes have been made. Growth, and our stated goal to profitably grow as fast as possible, will be calibrated for Gainshare in terms of number of policies rather than in just dollar terms—a simple change intended to reinforce the importance of every customer interaction. We will also begin to disaggregate new and renewal policy populations and

focus on the growth of each, with a weighting between the two reflective of the importance of the cultural shift toward increased retention of current customers. The loss of a current customer replaced with a new customer, while a numerical offset, is not a brand or economic offset we are happy with.

In about the last 20-some years, Progressive has doubled in size five times—each doubling more challenging than the last. During 2006, we blueprinted the plan for our next doubling incorporating many of the issues touched on above. While we are cognizant of our size, market conditions and the strength of competition, we are confident a Progressive of twice our current size can be a very real outcome with quality execution on our challenges.

INVESTMENT AND CAPITAL MANAGEMENT

Our investment portfolio made a greater contribution to our results this year with a total return of 7.4%, up considerably from the 4.0% produced in 2005. Investment income was up a healthy 21% for the year. Our common stock portfolio generated a return of 16.3%, largely tracking the general market. We continued to maintain a high-quality, relatively short-duration fixed-income portfolio. As the market price for risk declined during the year, we further reduced our exposure, ending the year with a weighted average credit quality of AA+, up from AA at the end of 2005. Fixed-income returns were strong on an absolute basis at 5.9% and very strong for the level of risk assumed.

Early in the year, shareholders approved an authorization to increase the number of shares outstanding and the Board of Directors subsequently approved a 4:1 stock split, which was effective in May. Based on our long-standing and continuing position on capital management—to repurchase shares when our capital balances, view of the future and the stock’s price make it attractive—we repurchased 39.1 million shares during the year, or a little over 6% of the outstanding balance at the start of the year. The average repurchase price was just under $25, on a split-adjusted basis.

We ended the year in a very strong capital position, with no constraints on any business opportunities, and a debt-to-total capital ratio below 15%. Our capital strategy preference is to maximize operating leverage (i.e., ratio of net premiums written to statutory surplus), while maintaining relatively low financial leverage, and we continue to expend considerable effort to assess capital needs under a variety of operating and external contingencies. We believe we have opportunities to extend our operating leverage and will continue to manage our capital to that objective.

As part of our capital planning process, we announced last year that we would introduce a variable annual dividend based on our Gainshare factor. During 2006, we published the year-to-date Gainshare factor in our monthly reporting to provide shareholders some familiarity with the measure and its relative volatility. We closed the year with a factor of 1.18.

The Board of Directors has established that the 2007 variable dividend will be based on 20% of after-tax underwriting profit multiplied by the companywide Gainshare factor for 2007 and paid in early February 2008. Based on similar parameters and the 1.18 factor of 2006, if the dividend policy had been in effect for the year, the dividend would have been about $.39 per share. We will continue to publish the year-to-date Gainshare factor and

full details of underwriting performance rather than provide any guidance on dividend expectations.

LOOKING FORWARD

Forward-looking statements and earnings guidance are not something anyone would associate with Progressive and we think for good reason. However, this letter to all shareholders serves as a good forum to tell our story as we see it—the results, the opportunities and, most importantly, the organization’s sense of optimism for the future.

We are continuously motivated by our aspiration of becoming Consumers’ #1 Choice for Auto Insurance throughout their insurable lives. While our growth in 2006 did not match our aspirations, the positive introspection that has resulted at all levels is exactly the attitude that is expected. Our Core Value of Excellence—continuously doing better than we have done before—is both demanding and a challenge that Progressive people love to embrace.

We tend to celebrate our successes quickly and then move on to our opportunities. As summarized in this report, we have several opportunity areas with tremendous upside potential. We enter 2007 with some exciting changes, an emphasis on capitalizing on claims strategies that have been developed over the past several years, a renewed focus on marketing and brand development, and an increased commitment to achieve meaningful progress toward the cultural shift necessary to make longer tenure for our customers possible and desirable.

Everything we have achieved is a result of the efforts of the nearly 28,000 Progressive people whom we sincerely thank for our business results and for continuing to make Progressive an environment where people enjoy working hard and are motivated to do their best work as well as an environment others want to join.

Equally important is our appreciation for the customers we are privileged to serve, the agents and brokers who choose to represent us and shareholders who support what we are doing.

/s/ Glenn M. Renwick

Glenn M. Renwick
President and Chief Executive Officer