Morgan Stanley downgrades 'best-in-class' auto insurer Progressive amid increasing competition

By David Bull

July 9 - (The Insurer) - After Progressive's shares rose by 50% last year and another 7% so far in 2025, the bull thesis for the auto insurer has “largely played out”, Morgan Stanley analyst Bob Jian Huang said as he downgraded the stock to “equal-weight”.

Shares in the carrier closed down 0.75% at $251.64 in New York on Tuesday following the publication of the analyst note.

In the note, Huang highlighted that Progressive’s stock had been “notably outperforming the S&P 500”.

“However, we believe the drivers of our prior bullish call are dissipating. With increasing competition, the thesis should now shift to managing peak margin and growth,” he said.

Huang and his colleagues had previously held an “overweight” rating on the stock but said these of unincumbered growth and margin expansion “is nearing its end”.

They identified two factors that change the investment thesis, with intensifying industry competition and potential pressure on Progressive’s valuation as it exits a peak growth and margin environment.

“These industry-wide changes and idiosyncratic thesis shift lead us to downgrade Progressive to equal-weight. On a relative basis, we see Allstate as having an easier hurdle to overcome, a more attractive valuation, and potentially not over earning. As such, we prefer Allstate over Progressive for now.

“To be clear, we continue to believe Progressive is the best-in-class auto insurance underwriter in the U.S., but the valuation appears to be full in the current industry environment, especially when looking at 2027e, where EPS could decline YoY,” the note continued.

Huang noted that as the auto industry raised prices in 2023 and 2024, most insurers are now near targeted profitability or better.

This is leading them to become “more aggressive about growth” and normalisation of pricing.

The note added that Progressive had grown unobstructed by competition in 2024.

“As competition intensifies, we expect future growth to slow, although underwriting risk should remain below industry peer levels,” it continued.

In the note, Huang also said that company specific trends could put margin pressure on Progressive.

“Since most of the industry did not grow in 2024, Progressive capitalised on the most profitable prices, supporting a solid combined ratio. As acquisition costs have dissipated so far in 2025, further improvements in the combined ratios are occurring. Similar to consensus, we believe the company might be over-earning,” he said.

This trend is likely to normalise in 2027, Huang suggested, taking Progressive’s combined ratio closer to the 92% to 94% range.

The analyst said that while he and his colleagues are maintaining their estimate for 2026 earnings per share at around $18.00, they are now forecasting EPS to decline to $17.35 in 2027, compared to their previous estimate of $19.00.