Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Jay Gelb – Barclays Capital
Jay Gelb – Barclays Capital
Progressive’s financial leverage is above its long-term target and excess capital appears to have been eroded as the result of investment marks. Under what scenarios might Progressive need to raise fresh equity capital?
Glenn Renwick
Very fair, that’s certainly a topic that’s been on all of our minds for some time. In the letter I tried to give you a fairly straightforward view of how we think about capital so I won’t recap those issues unless we need to. The conclusion, anybody wants to be overly concluding that you can be safe in this environment the concern and the pace at which we see changes through the third quarter and into October are clearly disturbing.
Having said that, having a very good understanding of our capital is the most important issue and I think we’ve done that to our satisfaction to the extent we’ve shared our thinking with rating agencies. We’re comfortable that what I outline in that letter is a fair and representative view of our capital. That doesn’t mean that we’re not thinking about plans E, F, and G.
You can reasonably assume that we’ve gone through all of the types of capital raised that you might need even though at this point that is not a plan that we have any need or intent to act upon but we have plans in place and at this stage to give you a probability of exercising any of those I would say its very low. It’s not something we’re being cavalier about. We simply don’t know what’s going to happen in November and December.
The two things that we can control, the most important parts when you step aside we have enough capital, I think I demonstrated that in the letter, our discipline to write at a 96 is absolutely paramount. In parallel to that to the extent we can we are taking risk out of the portfolio for the time being in these relatively volatile times. We’ve seen that with the increase in relatively lower risk holdings, cash and treasuries.
Those are the two things that you can assume will continue to go on. We’ll be extremely disciplined about them to the extent that we have anything that brings us closer to a threshold which we do have. Please don’t ask because we’re not going to go into the details of our planning, how far into contingency or whereabouts we would trigger that. We’re acutely aware of the fact we don’t want to be at a point where we have to do it before we do it.
- To read the full transcript on Seeking Alpha, click here »
